On RSWM
We have been recommending this stock right from Rs 108 levels and we had a modest target on the stock close to Rs 240-250 levels, the reason being that the company owns 20% into Bhilwara Energy. The LNG Bhilwara Group company we feel has got brand equity in terms of Mayur which is reflected into the current bottomline of the company.
At current market price, the stock is trading at close to the valuation that it deserves for its core business. But with Bhilwara Energy IPO coming in the next two-three quarters, this company can get rerated in no time. On a marketcap of just Rs 450 crore, the company’s stake in Bhilwara Energy is valued at close to the Rs 400 crore mark because in 2007-2008 IFC picked up a 10.48% stake for close to Rs 200 crore.
We feel this stock has still got some steam left and it can be traded in and out into this particular range till the stock achieves the target of Rs 240-250.
On Suprajit
Suprajit Engineering is one stock that we have upgraded yesterday itself. This is one stock which would definitely hog the limelight being in a space that has been the market flavour - automobiles. We like this particular story is because their subsidiary, Gills Cable Ltd was bought back by Suprajit, 50% for a consideration of Rs 25 crore sometime back.
If I see the potential for Gills Cable Ltd itself, it will be valued close to Rs 100-150 crore two-years down the line. That means the company's current marketcap would not justify the value of the subsidiary. In the current September quarter performance for the company, they posted close to 0.65 paise EPS and we feel that this continuous robust performance is going to continue even further going forward.
It has tie-ups with Hyundai, Swaraj Mazda, Hero Honda and Bajaj Auto – so it has been in the premium segment. In fact, Bajaj Auto and Hero Honda depend on this particular company for 80% of their raw material needs with regards to breaks, cables etc. So we feel this stock has got a tremendous potential.
Someone who has a potential to hold and trade into the stock from a two-three year perspective, this is a clear-cut multibagger. In fact, we have been recommending this stock right from Rs 50 levels, after that the stock had gone for a split as well as bonus.
We feel still there is tremendous potential left into the stock and this is one clear-cut multibagger looking at the valuation front also except for tyre stocks. Not a single ancillary unit is into a sub-10 levels P/E multiple. This particular company is trading at a P/E multiple of less than 10 and is a market leader in the space. We feel even if we assign a P/E multiple of 12-13 times for a year forward, the stock can easily trade at Rs 35-40 range. However, we have a modest target of Rs 30 for the year end.
On Godawari Power
Godawari Power is a very interesting stock, both from a medium-term to long-term perspective. This Hira group flagship company has not deserved a valuation that it is right now trading at. In terms of the reserves of the company’s coal mines, they own close to 63 million tonne of coal reserves in Nakia I and II based in Madanpur where their consortium is 1,243 million tonne.
For the next ten years the company will have no raw material problem. On the other hand, if I see the iron ore reserves in the Aridongri area that is based in Chhattisgarh, they have close to 13 million tonne of reserves. The company does not require this much reserves even if they operate at a full capacity for the next seven-eight years.
What is interesting in this company is that promoters have been slowly increasing their stake and right now they own 58-59% of the total float. We feel this stock has definitely got a rerating chance and looking at our peer recommendation into the stock, with a consensus EPS of over Rs 44 for FY12. We have been a bit cautious about the same. We are pegging EPS of close to Rs 37.
If I see another interesting aspect in terms of ratio, the enterprise value to EBITDA for the company is at 4.5 times which is trading at 40-50% discount to its larger peers like Tata Steel and JSW Steel. We do not feel that this stock should trade at these deep discounts given the huge reserves that it has and with a strong promoter group like Hira.
We feel the stock can easily get rerated and can give 20-25% return even from current levels. We have been recommending this stock as a small entry close to Rs 210-220 levels because the stock has been consolidating in this Rs 210-230 range. The stock can easily test that Rs 270-285 levels where our target is also set at from a six-nine month perspective.
On SPARC
SPARC is our third best pick after Wockhardt and Natco Pharmaceuticals. Sun Pharma Advance Research Company is India is one of the most innovative companies. This company will hog the limelight sometime in 2012-2013. This stock can definitely be traded during this two-three year gap. Why we are betting on this particular stock is due to a couple of reasons, it is the NCE business Sun 1344H where its competitor's patents are getting expired and Sun 461, the NDDS (new drug delivery system).
These two particular molecules have a market potential of over USD 14 billion. I am talking about the entire segment. If this company gets even 5% or 6%, which I feel they can definitely get because of strong promoter group, Sun Pharma, we feel the stock can be a multibagger if someone has the potential to hold this stock from 5-10 years perspective.
If I see the potential of the business, if the firm clocks close to Rs 700-800 crore in 2012 which is what we are banking on. The company can easily get in and trade a marketcap to sales ratio of close to 5-6 times. That means at current marketcap of Rs 2,000 crore, the company can be double in the next three years.
What is more interesting, if someone looks into the entire cycle, there will be some downturns and upturns. The stock has been rangebound for quite sometime in the range of Rs 90-110 level. It has also been a Diwali pick for a modest target of Rs 180 but we have been recommending entry and exit points to our clients.
Recently we have recommended an exit close to Rs 109-110 levels but we would again enter into the stock somewhere close to Rs 96-97 levels for one simple reason that this stock will definitely be in momentum because of its attractive business in future and also be a trading momentum stock. So from both perspectives, this stock can give humongous returns if someone trades as well as invest into the stock from a longer-term perspective.
