Here's why SP Tulsian is positive on Jayant Agro

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his outlook on the market and specific stocks and sectors.

A: About 15 months back we recommended Jayant Agro at Rs 167-170 on the channel as well and today the share is ruling at Rs 1,000. If I am not wrong, in financial year ending 2017, the stock has been the star performer giving a gain of 650 percent. So, obviously the question will come whether the upside potential still exists in the stock or not. I would say yes because if you take the developments happened on Friday, the board was to meet for split of share.

Share face value is at Rs 5 and they have given notice two weeks back that they will be considering stock split. So, what has come on Friday’s meeting, instead of stock split, 1:1 bonus has come because it is a silver jubilee here. If you see in the silver jubilee year, company has already given three dividends aggregating to 175 percent.

If you take the second item which has been approved in Friday’s meeting is Rs 250 crore effective equity instruments whether QIP placements and all but eventually the Rs 250 crore will get raised from the equity instruments. If you take a call now, the market cap is Rs 1,500 crore so dilution is just by about 15-16 percent will happen.

Company is a totally debt free company, net of working capital and if you take a call on the business of the company, they are into the castor oil processing, they are the world leaders. They have three joint ventures (JV), one with Arkema of France who are the largest castor oil user in the world and two Japanese company and one South Korean company. They source the castor oil because harvesting happens in the month of April and May, so, at that time their peak working capital requirement is Rs 400 crore and the stock keeps on diminishing till for the next 8-10 months. So, they have an interest liability of about Rs 32 crore and their peak borrowing on the working capital is Rs 400 crore.

So if you these Rs 250 crore available to you, your interest cost will fall by about Rs 24 crore for the whole year which will eventually make the EPS to move up by about Rs 10. If you see the profit after tax (PAT) after CAGR has been 86 percent in this last three years. For FY15 PAT was Rs 11 crore, for FY17 the PAT was about Rs 50 crore, and now I am expecting that PAT will increase, or EPS was about Rs 36 for FY17, I am expecting EPS to move to Rs 48 of which Rs 10 will come from interest reduction.

So, taking overall view into account and again FY17 was the record performance with an EPS of Rs 36, again 16 of FY16, and I am expecting that about 33 percent growth will come in the bottomline partly because of interest saving and partly because of the management commentary about the higher teen growth in the topline and all that. Again, as I said, they have about 110 products in the R&D products and exclusive products and 300 products are in pipeline.

So, taking all this into consideration, I am keeping extremely positive view on Jayant Agro for next maybe 12 months or so but keeping my target of Rs 1,250 in next six months or so. Now the share is ruling somewhere at around Rs 1,000-1,010.