Ashish Chugh recommends promising sub Rs 50 stocks

Investment analyst Ashish Chugh is bullish on SSPDL, IFGL Refractories and Andhra Cement. He advises investors to buy into these sub Rs 50 stocks.

IFGL Refractories:
IFGL Refractories is currently trading at a price of about Rs 48-49. This is a refractory company based in Orissa. Besides the plant in Orissa, this company has got two major subsidiaries called Monocon International and Hofmann Ceramics. In total this company has got manufacturing operations in seven countries. Now, 2008-2009 was a difficult year for this company mainly because of the fact that the steel industry saw a meltdown and the steel industry biggest customers. As a result of which the second half of the company was not that good. The company suffered losses in the second half of 2008-2009.

In the first half of the current financial year company has achieved a profit of close to Rs 17 crore. We have been recommending the stock on CNBC-TV18 earlier also but what reinforces your liking for the stock is the recent interview, which the management of the company had on your channel about a few days back now. They mentioned that the second half of the current financial year can be substantially better than the first half. We also believe that the worst maybe over for the company.

The company, which had installed its expansion project at Kandla, has now restarted that project. That project will add about Rs 150 crore to the revenues and that will become operational in 2011 and besides this, the company also looking for more overseas acquisitions. Now because of the company’s organic and inorganic expansion projects, which are going on, company has the potential to become a significant player in the world refractory market over the next couple of years.

So at the current market cap of about Rs 150 crore and price-to-earning of about 4-5, we do not see too much of downside from these levels. At a PE multiple of 4-5 the stock looks undervalued.

Srinivasa Shipping and Property Development Limited or SSPDL:
SSPDL is a very interesting real estate company where the current market cap of the company is very small compared to the kind of projects this company is doing. SSPDL is basically a play on the realty market in South India. This company is executing projects in Chennai, Bangalore, Kerala, Hyderabad and Vizag. The company has recently completed one project called Alpha City in Chennai, which is an IT park and also part rented that project.

Incidentally, Alpha City project was nominated for the category of Best Commercial Property by CNBC-Awaaz Crisil Real Estate Award in 2008. Besides this, company is also doing some other projects called Chennai Central, which is a shopping mall covering an area of 1.27 lakh square feet in Chennai, construction of which is expected to commence shortly. Then it is doing Matrix Tower in Chennai, which is again an IT park of 2 lakh square feet. It is doing a project called Promenade on 10 acres in Chennai covering an area of 11 lakh square feet, which besides mall and office complex will also house Novotel and Ibis brand of hotels.

This company is doing Northwoods in Hyderabad on 42 acre land, which comprises of 200 villas. The company is doing Retreat, which is a 120 acre gated community in Hyderabad. Then Retreat project in Bangalore covers about 48 acres and is located at Devanahalli, which is close to a new airport and it is also doing Retreat in Kerala on an area of close to about 320 acres. Besides these real estate projects, the company has also taken building contracts.

The company has got close to Rs 100 crore of construction contracts for buildings. Major ones being TCG IT park valued at about 36 crore, NSIC office complex about Rs 25 crore and one more group housing project worth about Rs 18 crore.

Another interesting thing is that Indiareit Fund Advisors, which is a company promoted by Ajay Piramal group, has also invested in some of the projects of this company. So I believe that at the current market cap of Rs 40 crore and the current price of Rs 35 per share, I think this does not reflect the full potential of the company.

The expected sales revenues from these various projects can be many times more than the current market cap of the company. Of course, there could be concerns over the short-term, which we saw with the most real estate companies. So at the current price of about Rs 35 per share, I don’t see too much of downside from these levels and if all goes well with the company, the stock has the potential to be a multiplier in the years to come.

Andhra Cement:
We like Andhra Cement because of the capacity expansion, which is going in the company. This is a GP Goenka group company, which has got two cement plants with a total capacity of 1.4 million tonne per annum. In FY09, this company achieved a sales of close to Rs 370 crore, profit after tax (PAT) was about Rs 60 crore, which results in an EPS of about 4.5. At the current price of about Rs 28, stock is traded at a price to earning multiple of about 7.

Now this company is undertaking a capacity expansion, which will take its capacity from 1.4 to 3.5 million tonne per annum. The increased capacity is going onstream in the next couple of days – maybe next week as what GP Goenka mentioned in a recent interview with CNBC-TV18.

So you have a company which is available at a price to earning multiple of about 7 on the old capacity and with the new capacity going onstream next week, which is going to potentially add the turnover by 2.5 times since the capacity is going up from 1.4 to 3.5 million tonne per annum, I think at the current market cap of about Rs 350 crore and the current P/E of 7, the stock is undervalued.

Another thing is that promoters have been increasing their stake in the company through market purchases and there has been a lot of inter state transfer between the promoters also. So promoters also realize the potential of the company and heartening fact is that the promoter’s stake in the company is close to 75%. So over the next few years, there is potential for dilution.

I see Andhra Cement is one of those candidates where potentially since there is a lot of interest in the cement companies from foreign players, there could be some kind of a strategic investor coming into the company or maybe some majority stake being given to some potential investor. Andhra Cement maybe a fit case where those possibilities exist.

Fundamentally, also at a price to earnings multiple of 7 on 1.4 million tonne capacity, of course, earnings are going to grow up when the expanded capacity goes on-stream. So at Rs 28 again, this is a market where midcaps and smallcaps have run away quite a bit.

To look for a safe stock in this kind of a market is slightly difficult. Andhra Cement at Rs 28 looks to be a stock where the downside looks restricted even if the market falls. And since the earnings are going to rise in the coming years, there is scope for significant appreciation from these levels.