Ashish Chugh picks Surya Roshni from smallcap universe

Ashish Chugh, Investment Analyst & Author of Hidden Gems feels that from a level of Rs 60 there is not too much of downside going forward in Surya Roshni.

Chugh told CNBC-TV18, "Surya Roshni - if you see the shareholding pattern till about a year ago the promoters of the company were holding just 29% stake in the company. Today their shareholding stands at about 62%. What has happened is that promoters in the first tranche converted warrants at Rs 59 thereby taking their shareholding up from 29% to 39% and thereafter they converted warrants at Rs 83 and subsequently came out with an open offer at Rs 111. By virtue of all these things, the promoter shareholding has gone up to 62%."

He further added, "Now the interesting thing is that even though the open offer was for 20%, the promotes were able to, the shares tendered in the open offer by just about 7%, which shows the optimism of the investors in the future of the company. Now after six months the stock is down roughly 50% from a high of about Rs 125 which it touched up when the open offer was on and currently trades at about Rs 60 -62."

"This company has got two divisions, lighting division and steel pipes division though lighting division contributes roughly 35% to the revenues of the company, the profitability it enjoys is much more. The lighting division has got two plants and it makes GLS Lamps and other tube lights, CFL Lamps, metal halides and many other electrical lighting products."

"This company claims to be the only one which has got 100% backward integration as far as the lighting products is concerned. Steel division manufactures various kinds of pipes starting from GI Pipes to ERW Pipes. 54% subsidiary of the company has just set up a plant in Gujarat for the manufacture of spiral pipes, which is going to add to the revenues and profitability of the company in the times to come."

"Talking about financials - FY11 sales were about Rs 2400 crore with a profit after tax of about Rs 67 crore, EPS was close to Rs 15, so at the current price of about Rs 60-62 this stock trades at PE multiple of about 4. In Q1 FY12 sales are higher by about 15% to about Rs 590 crore and profit after tax is also higher by about 15% to close to Rs 10 crore."

"Now company provides very high depreciation and cash profit for the company for FY11 was about Rs 120 crore. Marketcap of the company at the current price is about Rs 270 crore. So you have a business, which is available at roughly 2.5 years of its cash flow, market cap to cash profit as I mentioned is less than 2.5. Company enjoys very high sales to marketcap of about more than 10 and company has got a 20 year track record of payment of dividend. This is an uninterrupted track record. So I think you have a business which is available at very attractive valuations at a steep discount to the price, which the promoters have paid to increase their stake in the business and I think from a level of Rs 60 I don