Stock Idea: Andhra Cement

We like Andhra Cement because of the capacity expansion, which is going in the company. This is a GP Goenka group company, which has got two cement plants with a total capacity of 1.4 million tonne per annum. In FY09, this company achieved a sales of close to Rs 370 crore, profit after tax (PAT) was about Rs 60 crore, which results in an EPS of about 4.5. At the current price of about Rs 28, stock is traded at a price to earning multiple of about 7.
Now this company is undertaking a capacity expansion, which will take its capacity from 1.4 to 3.5 million tonne per annum. The increased capacity is going onstream in the next couple of days – maybe next week as what GP Goenka mentioned in a recent interview with CNBC-TV18.
So you have a company which is available at a price to earning multiple of about 7 on the old capacity and with the new capacity going onstream next week, which is going to potentially add the turnover by 2.5 times since the capacity is going up from 1.4 to 3.5 million tonne per annum, I think at the current market cap of about Rs 350 crore and the current P/E of 7, the stock is undervalued.
Another thing is that promoters have been increasing their stake in the company through market purchases and there has been a lot of inter state transfer between the promoters also. So promoters also realize the potential of the company and heartening fact is that the promoter’s stake in the company is close to 75%. So over the next few years, there is potential for dilution.
I see Andhra Cement is one of those candidates where potentially since there is a lot of interest in the cement companies from foreign players, there could be some kind of a strategic investor coming into the company or maybe some majority stake being given to some potential investor. Andhra Cement maybe a fit case where those possibilities exist.
Fundamentally, also at a price to earnings multiple of 7 on 1.4 million tonne capacity, of course, earnings are going to grow up when the expanded capacity goes on-stream. So at Rs 28 again, this is a market where midcaps and smallcaps have run away quite a bit.
To look for a safe stock in this kind of a market is slightly difficult. Andhra Cement at Rs 28 looks to be a stock where the downside looks restricted even if the market falls. And since the earnings are going to rise in the coming years, there is scope for significant appreciation from these levels.

Source: Internet (moneycontrol.com by Ashish Chug)

Stock idea: Tourism Finance

Tourism Finance is promoted by – one can call it a semi public sector undertaking (PSU) with IFCI holding 32% and 25% held by State Bank of India (SBI), Life Insurance Company (LIC) and four other insurance companies.
The company is into providing finance to tourism related projects. It has been giving a consistent performance. In fact this has not been in the news. If you look at FY09, they had an EPS of about Rs 3.6 which is likely to be maintained for FY10 as well.
The book value of this share at present is about Rs 37 and I think it is ruling at a price to book of 70% with a price of about Rs 26. We have seen all – whether it is small PSU banks or maybe financing or lending institutions to the power sector – have appreciated in the last six months by about 50-70%.
But I do not think that this has come into focus of analysts or maybe even investors. If somebody can take a call, I don’t think that there is any downside. The way we have seen a run up especially in stocks like LIC Housing and GIC Housing, this can also come on the radar.
IFCI holds a 32% stake and since IFCI is also regaining its health and again loaded with news, this could also be tagged along with the company or we may see a good restructuring or maybe even infusion of fresh funds to enlarge the level of activity.
If all those things can happen, I won’t be surprised if the company surpasses Rs 5 EPS for FY11. As I said, the book value is close to Rs 38 now which could rise to about Rs 42-43 by then. The stock has very good potential to appreciate by about 50-60% in the next six months.

Source: Internet (Moneycontrol.com by S P Tulsian)

Stock Idea: Donear Industries

Donear Industries is into textile and they have a very strong brand Donear Suitings for which Yuvraj Singh is the brand ambassador. The company has set up a new textile plant in Surat with an investment outlay of about Rs 220 crore for which they have gone for a borrowing of about Rs 120 crore. Prior to that it was a debt-free company and it has been doing quite. It had given bonuses in last five-years with a very high promoter stake of 90%, which the stock exchanges has asked them to reduce to 75%.
But since the Surat project of Rs 220 crore, which had gone onstream just six-months back, the company have been providing depreciation on the written down value method while all the listed companies are providing depreciation on the straight-line method. This is was because of the policy having adopted for written down value method. The depreciation burden has been quite high and that has resulted into the net loss.
If the company would have opted to provide depreciation on the straight-line method, there would have been net profit. If you see their H1 performance, they had a topline of close to Rs 115 crore in which Surat project has not contributed much – with a net loss of about Rs 5.80 crore and in this Rs 5.80 crore the depreciation element was at about Rs 17.5 crore. So if I take the cash profit element, the company had posted a cash profit of about Rs 11 crore for six-months on a equity of close to about Rs 10.40 crore.
The share has a face value of Rs 2 and now this Surat project will start contributing to the topline as well as to the bottomline. Maybe, I don’t know what would the logic will be, it may prevail upon the management to opt for the change in the depreciation policy and if they opt to do that – there would be a reversal of depreciation, which can result in a huge write back of the depreciation which can improve the bottomline.
But even if you take on a fundamental basis with a market cap of the company at about Rs 165 crore, as I said the debt is only to the extent of Rs120 crore – this company with an enterprise value of Rs 300 crore is ruling at a very low valuation. Their brand itself has been estimated in the past at about close to Rs 130-140 crore.
There is good upside. We have been seeing renewed interest coming in the textile stocks. I think if someone can take a call on this stock with six months view, one can expect at least 60% return from hereon.

Source: Internet (Moneycontrol.com by S P Tulsian)