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)

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)