Talking about the small-cap universe, equity analyst, Sanjay Chhabria, says that Greenply Industries is likely to be one of the prime beneficiaries of the ongoing construction boom in the country.
He looks at Bannari Amman Spinning as a long-term play in the textile space.
Excerpts from CNBC-TV18's Exclusive interview with Sanjay Chhabria:
Let's start with Greenply Industries, why do you like that story?
The company is likely to be one of the prime beneficiaries of the ongoing construction boom in the country. The company manufactures plywood decorative laminates and particle boards.
It has the highest market share in the organised sector, with 25 per cent in plywood and 14 per cent in laminates. The company is currently undergoing a capacity expansion at its new unit in Uttaranchal. After this the capacity of plywood will increase by around one lakh cubic meters.
What about the financials and valuations of Greenply?
The financials have been excellent, if one looks at the Q1 results the sales have increased by around 50 per cent to Rs 92.5 crore (Rs 925 million) and net profit has increased by 80 per cent to around Rs 4.5 crore (Rs 45 million). The results of March 2006 were also good, with net sales of Rs 280 crore (Rs 2.8 billion) and net profit of Rs 14 crore (Rs 140 million). Also, the market cap is low at around Rs 140 crore (Rs 1.4 billion).
The expected sales for FY06 are around Rs 375 crore (Rs 3.75 billion), and for FY08 around Rs 520 crore (Rs 5.2 billion). The stock is quoting at cheap valuations at around 7.5 times FY07 earnings and around 6 times FY08 earnings. Most importantly, the stock has not participated in the current smallcap run-up or midcap run-up.
Bannari Amman Spinning is the other one you like. Tell us why you picked this one from the entire textile family?
Bannari Amman Spinning, I would say is a long-term play in the textile space. Coimbatore-based Bannari Amman Group is a promoter and it is one of the most efficient spinning mills with the highest operating margins.
At present the company has a decent spinning capacity and a small weaving capacity. It has invested in windmills for captive power consumption. If one remembers, the company came up with an IPO at Rs 135 per share in October 2005 to fund its capex plans.
The plans included expanding its existing spinning and weaving capacity. More importantly, it is going into format integration by setting up a processing and garmenting and home textile facilities over the next two years.
The financials also have been decent with net sales of Rs 86 crore (Rs 860 million) and net profit of Rs 15.7 crore (Rs 157 million) for the year ended March 2006. It has posted an EPS of around Rs 10 and is quoting at 9.5 times current year FY06 earnings and around 8 times FY07 earnings.
Your third stock is RPG Life Sciences today? What is the story there?
RPG Life Sciences formerly known as Searle India, is a part of the RPG Group. The company has emerged as a focused pharma company after it divested its agro-chemical division in 2001. After continuous losses for three years, in FY06 it has posted profits of Rs 19.7 crore (Rs 197 million).
Some of the brands of the company are Lomotil and Lomofen, which are brand leaders in their respective segments. The company is present in both national and international markets and makes products through fermentation and the chemical synthesis route.
Going forward, I see a bottomline growth of around 15-17 per cent with similar percentage growth in exports. Besides this, the interesting thing is the way in which the company is reducing its debt from Rs 125 crore (Rs 1.25 billion) in FY05 to around Rs 94 crore (Rs 940 million).
This year also, debt will get reduced by Rs 20-25 crore (Rs 200 to 250 million). Also, the interest coupon rate has been brought down from 15 per cent to 10 per cent. The stock is quoting at around 9 times FY06 earnings and around 7.5 times FY07 earnings.
Disclosures:
I personally do not own any of the stocks, which we spoke about. However, some of my clients might be holding one or more of these stocks.
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