A Multibagger stock tips that can give good returns

Published: 24th February 2011
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Bullish on Jindal Drilling, JM Financial, Gujarat Ambuja Exports and Lakshmi Electrical Control Systems.

Q: What is the story in Jindal Drilling?

A: This is a drilling contractor having five jack-up rigs. If you see the performance, yesterday they have announced their Q3 results, that translates into an earning per share (EPS) of about Rs 10 plus. If I go by the full year performance, since we have the nine months performance in front of us, with bottom-line of about Rs 75 crore and top-line of about Rs 750 crore, FY11 should result in a top-line of about Rs 1,100 crore and bottom-line of about Rs 100 crore. And that makes the share ruling at a PE multiple of about ten times because EPS should be close to about Rs 42-43.

Traditionally, this stock tips has been ruling at a PE multiple of 16-18 times. But because of the carnage we have been seeing in the market and specially in this midcap or smallcap stocks, they have all taken beating beyond proportion. If you go by the financials performance, the five jack-up rigs have long tenure also. They have been deployed and the term of the contracts will be expiring from October í11 to as long as March í14. So, there will be having the periodical renewal also of these rigs at a higher level which will keep increasing their revenue as well as the profits. There is a very small debt of about Rs 4-5 crore in the books of the company.

So, taking all this into consideration, I think that stock has very limited downside. It has a good upside potential. If somebody can keep a view of about six months, it can give a price target of about Rs 550 from the current level.

Q: Your second pick is brokerage, a sector that hasnít done too well lately, JM Financials?

A: Thatís right. In fact that was the idea of choosing the stock because wherever we have seen this kind of negative perception for the sector or for the stock, the price has taken a huge beating and in fact it applies to JM Financials also. We have seen price moving to about Rs 45, maybe three-four months back on the rumour of the stake sale by the promoters and all that, when that was done by the Enam promoters. At that time, it went up to Rs 45.

If I go by the pure financials by the core business model of the company, this has a good presence in the broking mutual fund business, realty asset management. If we take a call on the earnings also, the share is ruling at a PE multiple of close to about ten because company has been consistently delivering the performance, the bottom-line has been about Rs 145 crore for Q3 on a top-line of about Rs 702 crore.

If you see the results, it has been equally divided in all three quarters that means they have a stable working and this is expected from Q4 as well. So, taking all this into consideration, whenever you have renewed interest coming back in these stocks or maybe because of the some corporate announcements or some expectations coming, the stock takes good jump from these levels. So, downside is virtually low. But one can expect a price to move to at least Rs 30 in next six months.

Q: What about Gujarat Ambuja Exports?

A: We donít often hear about this stock. But this is an interesting company, they have about 13-14 plant, they are into the maize processing, solvent extraction, flour mills, they have presence in Madhya Pradesh, Gujarat and Maharashtra. But their major presence is in Ahmadabad with about 10-11 plant. Also, they have the cotton yarn, they have 73,000 spindles.

If you go by their Q3 performance, they have posted a top-line of about Rs 650 crore, while the topline for first half H1 was 650 crore. Even the earnings have been quite good in the Q3 with EPS of close to about Rs 2 to 2.10. But if you go by the cotton yarn industry, they have been making very good money and the company has presence in Gujarat where you have good cultivation of cotton. They have the advantage of acquiring the cotton on a longer-term basis. They have always been prudent in having their better inventory management in respect to the raw material as well as in respect to the selling. So, taking a positive call on the cotton yarn because as I said they have 73,000 spindles that is going to give them a very robust performance.

As I said Rs 650 crore turnover came in Q3, but even if I donít extrapolate the same the company should be able to post a top-line of close to about Rs 2,000-2,100 crore for entire FY11 because they have already achieved a turnover of over Rs 1,350 crore. So, they should be able to have a turnover of Rs 2,100 crore. Even the EPS is likely to be about Rs 7 because they have already posted an EPS of Rs 4.50-4.60. So, they should be able to post an EPS of close to about 7.

The share is now ruling at a PE multiple of less than five. There have been institutional investors also in the company for quite sometime, so they must also be keeping the watch and the corporate governance issues and all that because there were some issues in the past as well for the company. But I donít think now those things are there. It is multidivisional, multi-location company with good presence in all the business segments and with a marketcap of close to Rs 450 crore, I think this is quite an interesting company at these levels.

Q: What are your thoughts on Lakshmi Electrical Control Systems?

A: This is LMW Group company and itís a smallcap stock having a marketcap of about Rs 60 crore. Couple of year back, they had the cotton yarn spinning units also along with them which they have hived off to a subsidiary and now that is in the process of getting sold off. Part of that fund is still lying in that project. But the core business of the company is low voltage switchgear and the stabiliser and thatís a very profit making venture.

If you take the present financials, they have a very low equity of Rs 2.5 crore with face value of Rs 10 and that translates into marketcap of about Rs 61-62 crore. For nine months, they have already posted a top-line of about Rs 110 crore with EPS of close to about Rs 33-34 with bottom-line of Rs 7.8 crore. In fact this low voltage switchgear, which is also with the big players like Siemens, ABB, they have their presence in high voltage switchgear and low voltage switchgear, but this product has a very good demand. They have a very good presence in the southern market.

FY11 should have a topline of close to about Rs 140-145 crore. Generally, Q4 result is always better for the company with EPS of close to Rs 45. I am very positive on the financial performance expected from the company for FY12. I wonít be surprise to see if they post a growth of about 30% in the bottom-line. So, they should be able to post an EPS of close to Rs 55 for FY12. If I take that earning, share is available at a PE multiple of 5.

This stock has been showing lot of volatility in this market, maybe couple of months back it went up to Rs 350-360 and now has fallen to about Rs 250. So, this should be an opportunity to buy this stock at these levels with a view of about three-six months again to see it moving back to close to about Rs 400.

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