Stock Idea: Sumeet Industries

Accumulate Sumeet Industries, says Ashish Tater, Fort Share Broking.

Tater told CNBC-TV18, "We feel the market has entered into a long-term consolidation phase with a broad range of close to 4,700-5,600. We have been suggesting to our clients that every time you enter into a midcap, at least twice short the Nifty itself. We have been recommending this from January in the New Year itself where we recommended Alok Industries and others because we have been quite bullish on textile for quite some time now."

He further added, "This strategy has been paying off well for us even now. If I see the last 10-12 recommendations that we have given to clients, there has been good Nifty returns in terms of shorting but the textile stocks have stabilised plus-minus 5%. Overall, net-net these pair trading strategies have worked well for us."

"On Sumeet Industries, for the last 20-25 days has seen a broad range of Rs 25 to Rs 28-29 mark but the Nifty has again fallen by 6-7% and is still having a negative bias attached to it. If I look into their expansion, they are going to post an EPS of close to Rs 6-6.5 for current fiscal, which will be available at Rs 28. In FY10 itself, the company has commissioned a two lakh plant on continuous polymer plants along with that capacity expansion into the FDY and POY yarns close to 23,000 TPA’s. That means one year or two year forward, the company would clock an EPS of close to Rs 12. The current price is Rs 28-30. I do not deny that the stock cannot fall to the Rs 24-22 odd levels, but that means the PE would be translated into 1-1.5 times."

"Taking a call on the textile industry, we feel the budget would be largely neutral to negative, to maximum sectors in this space but there would be some benefits to the textile stocks. If I see the demand for textile - cotton and denim, we feel there are another 2-3 quarters left for sheer outperformance in terms of share prices for the stock before this euphoria dies out."

"During this time, commodity stocks normally trade at 5 times their peak levels. That means on an estimated EPS of close to Rs 12 and discounting it by 20%, the stock should command a PE of 4 in the next six-eight months. We are targeting Rs 40-48 and we have an accumulate call on the stock."

"Looking at their entire expansion project, it needs to be funded close to Rs 500 crore, which means a lot of debt will come into the balance sheet of the company. This is one question that is worrying me, but the way they have managed their cash flows in the past, I am confident about the management. One good thing is that the management has not been sellers of the stock despite the stock having given good returns in the past.

Source: Internet (moneycontrol.com)