New Delhi: Investment Analyst Ashish Chugh shares two gems in the midcap space worth investing in.
Bambino Agro manufactures pasta, macaroni and noodles. For the past few years the company faced several problems on account of the high debt in its balance sheet.
Last year the company and lenders reached a settlement that led to the restructuring of debts. But this does not mean that the problems of the company are over. Financial institutions have waived off a part of the interest. The outstanding loan portion has been converted into a fresh term loan, which means that the problems of the company have been differed.
The company has a strong brand and an excellent distribution network. Products from the company are available not only at super marts but also at neighbourhood general stores. The brand equity and distribution network of the company is excellent.
The food-processing sector has seen a number of deals in the recent past. Orkla Foods of Norway has acquired MTR Foods for a total consideration of about Rs 400-450 crore. MTR Foods posted revenues of close to Rs 150 crore and is a profitable company.
Some private equity investors have purchased stakes in companies like Capital Foods, which manufactures the Ching’s Secret brand of Chinese products, and Punjab-based Cremica. There’s a good appetite for investors taking a stake in the food procession industry.
Bambino Agro faces two major negatives. First, the company has got a high debt in the balance sheet. Secondly, the company is into low value-add products.
I am not comparing MTR with Bambino Agro for the simple reason that MTR is into ready-to-eat foods, which has a very high value add, whereas Bambino Agro would be among the lowest rung in value addition.
Bambino Agro has already achieved revenues of about Rs 100 crore in the first nine months of the current fiscal and is likely to end the year with revenues of about Rs 135-140 crore. This company is already making operating profits on the net level and the promoter stake in the company is also high.
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For Bambino to move into the high value-added segment it may not be a difficult task as the biggest challenge is distributing that product. The company has a good distribution network and brand for selling that product. Its foraying into higher value-added products and sales may not be such a big deal. Herein lies an opportunity for the company.
The market likes a company that has got a high EBITDA level, so the promoters have the capability to move into high value-added products. Bambino Agro already has a private company that is into high value addition, so the company could directly foray into high value-added products or may be merger with that company to grow shareholder valuations. The high debt in the balance sheet may not be difficult to handle as today you have private equity investors who are ready to fund companies where they see potential.
Given these two factors you may have a multi bagger in Bambino Agro. The biggest risk lies in whether the management will be able to grab this opportunity and turn it in its shareholders favour. In case they accomplish this you have a multi bagger in Bambino and if they fail the stock may continue to languish at Rs 10-15 levels.
Jolly Board scrip may seem to be on the higher side but if you look at market cap and value in the company you may find it attractive. The major negative is that it’s an illiquid stock. The company’s equity capital is just about 91 lakh and promoters hold 90% stake.
This company is a play on the land bank that they have in Mumbai. It earlier had its plant at Kanjurmarg in Mumbai which has now been shifted out of Mumbai. This company is developing the land at Kanjurmarg by constructing a 2 million sq ft IT park there. It has already entered into an agreement with a Mumbai-based builder for that. As per the agreement terms, the land is provided by the company and the construction cost will be borne by the builder. Both parties will share space on a 50-50 basis.
Jolly board without incurring any fresh capital expenditure is expected to get about one million sq ft of commercial and IT space. I am told that rentals in that area would be about Rs 50-60 per sq ft but to be conservative we assume a rental of Rs 30-40 per sq ft. This would translate into a rental of about Rs 3-4 crore for the company every month, which is about Rs 36-48 crore yearly. The market cap of the company is about Rs 100 crore, so you have this company available at less than three years of gross annual rentals.
When an investor invests in commercial property the thumb rule is a return of about 5-6% whereas in this case, at the current market cap, you are getting about 33%. The risk is that this project is going to take at least two years time to complete. In case there is a property meltdown in the interim or if they are not able to find a tenant for that property that could be a risk but sure at the current market cap there is value in the company.
Taken from moneycontrol.com
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