Stock Idea: Uflex Ltd.

Uflex continues to look like a no-brainer at the current market price, says Ashish Chugh, Investment Analyst & Author of Hidden Gems.

Chugh told CNBC-TV18, "Uflex has plummeted from a high of about Rs 325 to the current price of about Rs 155 in about three months time. This has been on account of negative newsflow. The first was the news of the arrest of the chairman of the company in the month of December. Then was the Egypt crisis, where Uflex has got its manufacturing operations. Inspite of the company’s profit rising five fold from Rs 46 crore to Rs 250 crore in the quarter ending December, the stock fell from about Rs 325 to Rs 155."

He further added, "It is the largest integrated flexible company in India and one of the largest in the world. The company has got manufacturing operations in India, Egypt, Mexico and Dubai. They have aggressive plans to setup operations in other countries and are currently undertaking expansion projects at Mexico, Egypt, Jammu and Poland. Mexico phase II is going operational in the month of June 2011. In Jammu, the expanded capacity is going operational in September 2011 and Egypt is going operational in December 2011. It may get delayed because of the current situation in Egypt."

"For the first nine months of the current financial year, this company has registered sales of about Rs 2,600 crore, which is up by about 50%. Profit after tax (PAT) for nine months, is up by close to 250% from Rs 144 crore to Rs 515 crore. The current equity of the company is about Rs 72 crore."

"I am taking a conservative scenario, on the impact of the Egypt crisis on the operations of the company and also the impact of the softening finish product prices, they can conservatively do a PAT of about Rs 150 crore in the quarter ended March 2011 which means that the full year EPS is going to be on a conservative basis at about Rs 90."

"My hunch is that the EPS can be anywhere between Rs 95 to Rs 100. At the current price of Rs 155, you are getting the stock at PE multiple of just about 2. Having a profit of Rs 700 crore and marketcap of just about Rs 1,100 crore, it looks to be at least for the short-term. In future, the impact of the softening finish product prices will be more than made up for the expanded capacities, which are going on-stream in the next one year."

"This company has been a regular dividend payer. In the past, the policy has been to distribute about 15-20% of the profit as dividend. They paid a dividend of 50% in FY10 and given an EPS of close to Rs 100 this year, even assuming a 10% dividend payout, it would lead to a dividend of about 100% which at the current market price gives you dividend yield of about 6.5% to 7%."

m taking a reverse calculation just to be safe on whether to buy this stock or not. In a normal market, this stock should command a PE multiple of about 5. At the current price of Rs 150-155 the market is assuming that the EPS of the company is going to drop to about Rs 30. From a level of Rs 90-100 EPS, something has to be drastically gone wrong with the company or the economy or the market for the stock to stay at these levels."

"In the month of October, promoters have taken 1 crore 35 lakh warrants to be converted at a price of about Rs 300. Out of this, 35 lakh warrants have already been converted in the month of December, which shows the confidence of the promoters in the company."

"I believe that the fall from Rs 325 to Rs 155 is largely overdone but given the state of the market as of now and the negative sentiment prevailing, I don’t rule out the possibility of the stock dropping by another 5-10% from these levels. More or less, however, the stock trading at a PE multiple of just about 1.5 and dividend yield of about 6.5% to 7%, it looks to be a no-brainer at the current market price."

Source: Internet (moneycontrol.com)