Swaraj Mazda, Premier Limited; a true multibagger

On SML Isuzu

Swaraj Mazda has renamed its entity as SML Isuzu. This is one stock that we like because of two things - one, the parentage and the strong exposure of parentage into the areas where India definitely, need some building up. The company is doing the rounds that Actis wants to exit and Isuzu wants to buy that particular stake. This story has been doing the round right from Rs 310 when the promoters heard a rumour that Rs 400 would be offered to Actis for exiting its 5% holding.

The company’s parentage is connected with Sumitomo Corporation, which is an almost 1.5 trillion Japanese Yen company. If I look into the space where the parent is right now, India definitely requires these kinds of companies for maintaining 8-8.5% GDP growth. Apart from this, if I look into the standalone numbers for Swaraj Mazda, I see that the company would clock close to Rs 20 of EPS for this fiscal itself.

Companies from Japan normally trade in the range of 20-25 times forward. That gives me a target of Rs 500. But there is one small catch that this stock has not fallen every time the market has received a beating down. This shows that the stock has been actually accumulated by strong hands. We have a longer-term target on the stock of close to Rs 1,000.

Right now, on the financials, there is nothing to suggest that it can easily go to Rs 1,000 level but if I see the company’s potential in aerospace, railways, I think with the 5-6% exit from Actis, the company would bring in more from the parent and would like to use the expertise of the parent. That would be shaping out for the company in the years to come.

We have an estimate of close to Rs 32 EPS for next fiscal. Going by the same multiple rule which means 20-22 times forward multiple, it leaves me in a comfortable zone of Rs 650-700 from one-and-half-two year’s perspective. But on a longer-term, this stock should be accumulated everyday, 5-7% one should be adding 100 shares.

If someone wants to buy 1,000 shares for the stock because on the longer-term this is one stock which I feel would definitely hog the limelight as a delisting candidate or the stock would gives a multi bagger potential because of the strong parentage from Sumitomo Corp and is into a space which India definitely requires in the future.

On Premier

Premier Limited is one stock that has hogged the limelight yesterday itself from our report. We saw a technical bounce from its oversold position of close to Rs 90 and the stock closed close to Rs 100. If I look into the financials of the company, it has promising prospects going forward.

Premier formerly known as Premier Automobiles Limited use to be famous for its Padmini for its product but now the company has again come up with an SUV called Rio with 1.5 billion PAT with a China based company. The company has two segments - engineering and the automobile space. If I see into the engineering space itself, with its production capacity ramping up in the wind turbine space, there is a lot of potential but there is a hidden asset in the company which the company owns strategically.

In 2008, Indiabull Real Estate and other companies bid for the land that one of its holding company PAL-Peugot, at that point of time use to hold, close to Rs 1,000-1,500 crore but the deal could not work out. This company owns 200 acres of land in the same area. The company is in talks with some builders and they are ready to get rid of this extra land. I see that the company can easily generate close to Rs 550 crore within six-eight months time.

This is one tough call for any company when this kind of deal gets structured. Company’s like Hind Composite, which where in talks with a lot of players for almost two years have become a multibagger in two-and-half years.

Looking at the balance sheet, the company owns close to Rs 200 crore of debt into the books. The market cap is close to Rs 300 crore. By the sale of land itself, the company would generate close to Rs 600 crore in terms of cash flow. If the company pays out their debt into the books, the company’s EPS is going to just double in no time.

Apart from this the company expansion has been completed in Chinchwad based in Pune where it also owns 27 acres of land and factory. This is one area where the company can easily go for brownfield expansion which is very important. If I you look at their two engineering divisions - the company would clock close to Rs 8.5 EPS for this year and close to Rs 11 of EPS for next fiscal.

They just started to reflect again in their bottomline and topline. We feel there is a promising prospect for the company, both from hidden gem side and also from the prospect of the business itself.

We have a longer-term target of close to Rs 180 but yesterday the v-shape recovery that the stock took; we feel that the technical target can also be played with a target of Rs 125 in the days to come. This is one company that should be bought because there were brokerage reports suggesting the stock could be a multibagger even when the stock was hovering around Rs 170-180 mark in 2007 with just the land deal getting structured and going through.

If someone has a potential to hold the stock and trade into the stock for next two-and-half years, the stock could be a true multibagger with limited downside on the stock. We have a buy rating on the stock with a medium-term target of close to Rs180.