This is according to his articles of Mudar Patherya in the Business Standard.
Mudar Patherya has recommended Bhansali Engineering Polymers (BEPL), Tata Sponge Iron, Sterlite Technologies, Prakash Industries, Jindal Saw and Aksh Optifibre.
Anyone has view on whether the stock recommendations of Mudar Patherya are going to be multibaggers and are good for buy?
Bhansali Engineering Polymers (BEPL): Around January 2017, BEPL reported an Ebitda (earnings before interest, taxes, depreciation and amortisation) of ~95.5 million and I would have been excused for dismissing it as overpriced. But, consider what transpired thereafter. An Ebitda in excess of ~280 million in Q4 FY17, profit increase in every subsequent quarter and finally an Ebitda of nearly ~490 million in Q3 of FY18. Sadly, one can’t buy a stock whose annualised Ebitda (another story but permit me to be an optimist) has been discounted 15 times, though I will concede that the interest cover of 22 times indicates the company is currently swimming in cash.
Tata Sponge Iron: The type of performance that makes me bullish on India. Sales increased across each of the past five quarters but one; total income strengthened from ~1.43 billion in Q3 of FY17 to ~2.14 billion in Q3 of FY18. What I absolutely love is the way it has translated revenue increase into profit growth. Ebit (earnings before interest and taxes) strengthened from ~160 million to to ~570 million across the terminal quarters (58 per cent of revenue growth); interest was a mere ~23.3 million in the past quarter or an interest cover of around 30 times. Outstanding for a commodity steel sector play at the cusp of sectoral turnaround. Market cap: ~18 billion (would have preferred this commodity play cheaper).
Sterlite Technologies: One of India’s largest manufacturer of optic fibre cables and structured data cables makes for an attractive proxy of a digitising India. Here, too, I find evidence of sustained growth across the past five quarters — Ebit of ~1.04 billion in Q3 of FY17, increased uninterrupted to ~1.64 billion in Q3 of FY18; interest declined from ~300 million to ~260 million across the period. The problem is its valuation of ~150 billion (which means the annualised Ebitda is valued 18 times and the market has already discounted all prospective growth). Sadly.
Prakash Industries: This is not the first time I am writing about this company in recent times. The reasons lie in the company’s growing numbers – increased Ebit across each of the past five quarters, starting from ~370 million in Q3 of FY17 to ~1.20 billion in Q3 of FY18. If one is worried about the commodity play part (the company mines ore, generates own power and manufactures steel), remember the company comes with an interest cover of eight times. A market cap of ~37 billion for a company with annualised Ebitda of ~6 billion does not look too bad at a time when the sector is poised for an uptrend. This is a stock I would keenly watch across the next few quarters.
Jindal Saw is engaged in the manufacture of ductile, seamless and helical pipes and pellets. The company principally addresses the water and oil sectors, marked by fresh capital expenditure. The foreseeable quarters are possibly the first time in years that all the company’s businesses are expected to fire concurrently. The government’s guidelines favour Indian manufacturers over imports. The increase in steel price could strengthen pipe realisations. There is now an expectation that the UAE based subsidiary could enhance capacity utilisation and margins that make it Ebitda (earnings before interest, tax, depreciation and amortisation)-positive by the last quarter. There is also the question of ~3.58 billion of disputed arbitration, which, if awarded to the company, could strengthen cash flow. The company could well be a volume and value play in the foreseeable future.
While increased margins and profits would be predictable, the kicker could come from the way the company strengthens its balance sheet. The big question: Will the company announce an expansion (that could defer debt decline) or focus on sweating assets (that could drive profitability)? The net worth of around ~55 billion is offset by total debt of ~42 billion (including working capital). Should the company announce an embargo on capital spending, it would immediately imply a prospective debt decline, strengthening interest cover — and corresponding valuation.
This comforts me: The company’s Ebitda of ~ 2.68 billion in a particularly weak Q2 FY18 indicates that it should at least earn ~10 billion in a full year (any fool will tell you that), which makes the prevailing ~51-billion market cap appear reasonable. Now if the third and fourth quarters are significantly better, re-rating could be a distinct possibility.
My interest in Aksh Optifibre is not derived as much from its Q2 of FY18 results (Ebitda of ~150 million-plus) as much from the fact that the company doubled its optic cable capacity to nine million km, commissioned 150,000 km of optic fibre capacity, doubled its FRP (fibre reinforced plastic) rod capacity and raised fivefold its ophthalmic lens capacity — all from Q3 FY18. This makes the third quarter interesting and the fourth quarter completely compelling.
The substantial capacity expansion apart, these are some of the other realities that the markets may find difficult to ignore: The global optic fibre market is expected to sustain double-digit offtake growth, China and the US continue to pursue an aggressive optic fibre investment programme, India expects to double its optic fibre demand in three years and the country is hinting the implementation of 5G even before 4G has settled (indicating a sustained increase in fibre demand).
Two additional domestic factors appear interesting: Aggressive Smart City roll-out is likely to translate into fibre supply-cum-turnkey network implementation assignments across the sustainable future, resulting in highmargin service income. And, BSNL’s aggression in wiring the broad landscape of the country is expected to enhance sectoral cash flows, with attractive trickle-down for Aksh.