FOUR PICKS FROM “DIRTY DOZEN”

By SP Tulsian

Our Editor, Mr.SP Tulsian is well known in the investing fraternity for his thorough research, frank and outspoken analysis, logical reasoning and great conviction in everything that he says.

In our Market Whispers section, the registered members have got the advantage of his words of wisdom during all times – be it good or crisis times. After RBI announced the decision on NPA resolution and named the “dirty dozen,” Mr.Tulsian had analyzed four of them in this list. In fact he stuck his neck out and gave a “buy” call while the rest of the world was shouting “sell.”  His BUY, that too as an investor is based on sound reasoning and we give all our readers the advantage of his logic.

Four companies have been covered by him in our Market Whisper section; take a look and understand why he gave that contrarian call.

AMTEK AUTO

Amtek Auto is learnt to be one amongst 12 companies, identified by RBI for NPA resolution or eventual reference to Insolvency. As stated by us repeatedly, we feel that 12 such companies are due for early resolution of NPA, either by the same Promoter or seen to have lot of take over interests from new Acquirers, because of NPV seen much higher than eventual EV, due to revival prospects seen in some of these companies.

Amtek Auto, referred to by the media as "Dirty Dozen", has 4 more listed Subsidiaries or Associates viz. JMT Auto, Castex Technologies, Metalyst Forgings and Rollatainers, is one of the largest integrated auto component manufacturers in India, while having global presence with world class facilities in Japan, Thailand, Germany, Hungary, Italy, Romania, UK, Brazil, Mexico and US. Company is catering to over 30 Auto makers in India like Maruti, Hero, TVS, Tata Motors, SML, Ashok Leyland. Volvo, Ford. BMW. Land Rover and over 30 other customers in Tractors and non auto space like Railways, Eicher, Escorts etc.

During FY15 consolidated income of the company was at Rs.15,200 crores, with EBITDA of Rs. 2,400 crores. Company has consolidated debt of about Rs.16K crores, while M Cap of all the 5 companies are presently at Rs.1,800 crores and it is also learnt that nothing negative has been found out by the lenders in the Forensic Audit against Promoters and all 5 companies. Lenders have made provision for about 40% of loans and taking that as benchmark, debt of the company can get settled at around Rs.10K crores, if a new and sound promoter comes in, for which 21 bids from prospective buyers are seen having received by the lenders.

NPV of all the assets are seen estimated at about Rs.24K crores, while strong players like Motherson Sumi, Bharat Forge and Mahindras are learnt to be keen acquirers, as plant and infrastructure of the company are of global standards, without which, they would not have had world auto makers as its clients.

TV Channel and few experts are presenting scary picture on assets quality and apprehension of non-resolution, for last 1 week, for reasons best known to them, including giving Zero value for Dirty Dozen stocks, coupled with fear of Liquidation by NCLT as well. Take a note that no lenders to the company will take a hit higher than what has been provided till date. Even if the loans are settled at around Rs.10K crores, which is most likely to be above this amount, stock can even rise by 100% from here. It is rumored that Motherson Sumi and Mahindras are seen serious acquirers and informed circles are talking that if Motherson Sumi has to meet its turnover target of US$18 billion in FY19, they have to acquire this pricey company and once such Promoter comes in, stock will get vastly re-rated, while all the negatives projected by electronic media are seen having exposed, with buying now seen across the board in the stock for last few days.

Share has been seeing value buying in last couple of days, with stock price having moved up from 52-week low of Rs.21.25 hit on 20^th June to Rs.31 today. There is very low float now, with Promoters holding 52%, while 27% is held by by institutions, HNIs, with public float seen at 21% for just about Rs.160 crores. Share ruling at Rs.31 can move to Rs.33 in 1 month and Rs.35 in the next 3 months, while stock is capable to give a gain of 100% also in next 1 year, if a new promoter comes in, which is most likely. Buy as an investor.

BHUSHAN STEEL

Bhushan Steel is one amongst 12 companies, identified by RBI for NPA resolution or eventual reference to Insolvency. As stated by us repeatedly, we feel that 12 such companies are due for early resolution of NPA, either by the same Promoter or seen to have lot of take over interests from new Acquirers, because of NPV seen much higher than eventual EV, due to revival prospects seen in some of these companies.

Bhushan Steel, has 5.6 MTPA operational integrated Steel Plant, while industry experts are seeing plant of the company, as Technologically most advanced, making most critical Auto Grade Steel, supplying to Maruti and M&M , Hero and other Auto makers, as also to all Capital Goods and White Goods makers as well, who rely and demand quality Steel. Even the company is in process of expanding its capacity to 10 MTPA, for which WIP of Rs.5K is seen appearing in the books of the company.

Company has also earned an EBITDA margin of 21.92% in FY17, which was at 21.90% for JSW Steel. In spite of working capital constraints, company had achieved an income of Rs.13,706 crores for FY17, which was at Rs.55,756 crores for JSW Steel for FY17, having capacity of 18MTPA.

Stock is seen a High Risk High Return Stock, but all its competitors will praise its technical competence and quality of plant. It is also learnt that nothing negative has been found out by the lenders in the Forensic Audit as well. Debt of the Company is seen at close to Rs.39,000 crores, which can get settled, if a new and sound promoter comes in. NPV of all the assets are seen estimated at over Rs.45K crores, while current M cap of the stock is at Rs.1,522 crores, as the equity base of the company is quite low at just Rs.45.30 crores, with FV of Rs.2.

TV Channel is seen presenting wrong financial data, of Debt at Rs. 50K crores, which includes Working Capital loan of over Rs. 8K crores, which is not termed as debt. They suppressed NPV of Plant and did not highlight highest EBITDA margins having earned by the company in FY17. TV Channels have been seen giving negative view on the stock, for last  10 days, for reasons known to them, including giving Zero value for Dirty Dozen stocks , coupled with fear of Liquidation by NCLT.

Take a note that, no lenders to the company will take a hit higher than what has been provided till date, which is learnt to be around 30%. Even if the loans are settled at around Rs.30K crores, which is most likely, stock can even rise of 100% from here. It is rumored that Arcelor Mittal and Vedanta Group are keen to acquire the company, having submitted the bid to lenders as well, and informed circles are talking that Bhushan Steel was as seen such a nominee of Arcelor, otherwise how a company with Paid up equity of just Rs. 45 crores, would get a loan of Rs. 45K crores? Due to lower capacity utilisation, due to inadequate working capital, operating leverages are not enjoyed by the company, as Fixed costs are very high for an integrated Steel plant, which otherwise can make EBITDA margin to rise beyond 35% as well, once new Promoter like Arcelor or Vedanta comes in, with stock vastly getting re-rated, while all the negatives projected by Electronic Media are seen having exposed, with buying now seen across the board in the stock.

Share price did not tank to a new low but two days after losing, it bounced back with vigour, going up over Rs.76 on 21^st June and remains firmly in the green every day. There is very low float now, with Promoters holding 59%, while 33% is held by by institutions, HNIs, with public float seen at 8% for less than Rs.150 crores. Share ruling at Rs.77 can move to Rs. 81 in 1 month and Rs.85 in the next 3 months, while stock is capable to give a gain of 100% as well in next 1 year, if a new promoter comes in, which is most likely. Buy as an investor.

MONNET ISPAT

Monnet Ispat is one amongst 12 companies, identified by RBI for NPA resolution or eventual reference to Insolvency. As stated by us repeatedly, we feel that 12 such companies are due for early resolution of NPA, either by the same Promoter or seen to have lot of take over interest from new Promoters, because of NPV seen higher than EV or revival prospects are seen in the respective companies.

Monnet Ispat has 1.5 MTPA integrated Steel Plant at Raipur and Raigarh , with over Rs.5K crores seen in Capital Work In Progress, with allotment of Coal and Iron Ore mines or linkages, as also, having 35% stake in Orissa Sponge, is seen a High Risk High Return Stock. Joint Lenders have invoked SDR on 22-08-15 and subscribed to 51% of equity of the company, at Rs.34.20 per share, while lenders are empowered to bring in a new promoter in the company under SDR and hence may take the company to Insolvency as a matter of formality, but may bring in a potential acquirer, as many are seen lined up to acquire these pricey assets.

Debt of the Company is seen at close to Rs.11,500 crores, which can get settled, if a new and sound promoter comes in. NPV of all the assets are seen estimated at over Rs.13K crores, while current M cap of the stock is at Rs.700 crores, making estimated EV of the company at less than Rs.8K crores, if loans are settled at around Rs.7,500 crores, which is most likely. It is rumoured that JSW Steel is keen to acquire the company, having submitted the bid to lenders, and going by the statement of JSW Steel MD & Group CEO, who gave estimated cost of Rs.3,000 crores, for Brownfield expansion of 1 Million tonne of a Steel plant, indicates its NPV of over Rs.10K crores, as any potential acquirer will always be seen estimating it on the lower side.

Thus going by these estimates, company can get valued at Rs.11K crore plus, due to its integrated nature and raw material linkages seen in place, where estimated cost is seen even now at $1 million for 1 Million tonne Steel plant. Once a new promoter like JSW Steel comes in, stock will get sharply re-rated, while all the negatives projected by Media, seen having already factored in, due to which, stock has not corrected below Rs.30. Share has very low float now, with Lenders holding 51%, Promoters 25%, and 17% by institutions and HNIs, with public float seen at less than Rs.50 crores. Share ruling at Rs. 34 levels can move to Rs. 39.50 in next 3 months, while stock is capable to give a gain of 100% as well in the next 1 year, if a new promoter like JSW Steel comes in , which is most likely. Buy as an investor.

JAYPEE INFRATECH

Jaypee Infratech is one amongst 12 companies, identified by RBI for NPA resolution or eventual reference to Insolvency.

JP Infratech is having 165 km Super Highway like Mumbai Pune Expressway, learnt to be having longest Concession Agreement for any Road project in the country, of over 36 years and now have residual life of about 30 years. Company also got allotment of 5 land parcels, of 1,240 acres each at Agra, Aligarh, Gautam Budhha Nagar and at Noida of 2 parcels.

Even if we presume that last 3 land parcels no more exists with the company, as havce been developed, first 2 are still seen with the company, which is not talked by Media and Experts, either having no knowledge or intentionally. These 2 land parcels of 2,500 acres at Agra and Aligarh can be developed as Affordable Housing, having potential to develop 20 crore square feet of housing project, qualified now as tax free.

Company is seen having total debt of Rs. 9K crores, which may get settled for Rs.6K crores, while NPV of company is seen at Rs.12K to Rs.15K crores, while M Cap is just Rs. 1,500 crores. If a new promoter comes in, which is most likely, share will get vastly re-rated, with re rating seen flowing to share. However, such stocks should be bought as High Risk High Return, in small quantity, with view of 12 months or so, if wants to reap big gains. The stock price has been breaching the UC and hitting new highs consistently for past couple of days; today too it breached the 10% UC to close at a new high at Rs.18.38. Buy as an investor.