June 15, 2007

Searching for investment candidates - III

In continutation of my previous posts (see here and here), I am posting a very rough analysis of a few more rejected and ‘in-process’ ideas. Again a disclaimer – I am not promoting or justifying any of these stocks. These stock may be injurious to your networth if you are looking for quick profits (if they come, no credit for me on that). With that out of the way, a few more ideas follow

No Go bucket

Motherson sumi systems – The company is priced at a PE of 25. Unlikely that the stock is undervalued. Just had a quick look at the financials and have no reason to believe that the stock could be undervalued.

Electrosteel – The company is into DI pipes and has a PE of around 7-8. The performance has been cyclical. The net profit reached a peak of 97 Crs in 2002-2003 and this performance was repeated only last year with a net profit of 108 Crs. The company raised capital via a GDR issue and has backward integrated into sponge iron. The economics of the business are ok and the performance has been a bit cyclical. The stock may be a bit undervalued, but I am not sure if the discount is more than 20-30% and hence I am not too excited by the stock. The company seems to be fine and the stock a bit undervalued, but I think there are better opportunities in the market.

Go bucket

Savita chemicals – A midcap chemicals company. Topline has grown from 250 crs to almost 700 odd crores. Netprofit in the same period has climbed from 11 crs to around 38 Crs. The company has a low debt on the balance sheet. The margins have held steady at 5% and the ROE is 20%+. The company may make a profit of 40-42 crs this year. At a market cap of around 350Crs the company seems to have a reasonable valuation of 7-8.

MRO-TEK – A small cap company into computer hardware. The topline has grown from 90 Crs to around 150 Crs and the net profit from 7 to around 17.5 Crs. This year could be lower at around 9-10 Crs. Net of cash the company seems to have a valuation of around 7-8. The margins have flucutated between 4-10% and the ROE has also fluctuated between 7-25 %. Cannot make up my mind on this stock. Will need to analyse further. However overall the stock does not look too exciting.


Anonymous said...

Savita: Looked at the FY'07 AR - different conclusion. Has become a borrower now (vs. cash flow +ive company previously). To fund Wind Energy which seems to have very low sales/investment (Mr. Tanti would be happy but what about Savita's shareholders?). The main transformer/lube oil business is growing but margins are shrinking - lacks Castrol's pricing power, for e.g. Maybe, just maybe, the single digit P/E is well deserved.

Rohit Chauhan said...

savita passed through my initial filters. however i could not get their AR and did not sufficient information beyond the basic financial data. as a result i gave the company a pass