Top Mispriced Bets for next 6-9 months. 50% upsides?

Stock Opportunities
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This is an ‘odd’ counter, or rather an ‘unnoticed’ company, which has hardly ever been spoken about in the media or by the analyst fraternity. This small cap stock may be unheard to many, even to those who have been in the market for long now. However, its fundamentals look very promising.

Eldeco Housing and Industries, a 30 year old company from Uttar Pradesh, is a leading real estate company, operating in the residential, commercial and industrial construction space, in North India. In Uttar Pradesh, it enjoys leadership position in the cities of Lucknow and Kanpur.

The Eldeco group, having executed over 150 real estate and construction projects till date, is currently developing 30 projects in Noida, Greater Noida, Faridabad, Gurgaon, Sonepat, Panipat, Ludhiana, Jalandhar, Neemrana, Lucknow, Kanpur, Panchkula and Sitarganj.

The company primarily undertakes construction of mixed use townships in the low income to mid-income groups (LIG and MIG). Being an old and well respected name in Lucknow, its projects receive good market response, immediately upon launch.

And also thanks to the goodwill which it has built and maintained among its customers, the geography of UP is very much captured by the company. Growing influx of population from East UP into Lucknow further supports the company’s growth.

Equity (30-6-16) is tiny at Rs. 1.97 crore (FV Rs. 10 each), of which, promoter holding is at 55.20%. There is nil institutional holding in the stock, but 3 HNIs hold 4.79%, leaving balance 40.01% in the hands of 2,000 retail shareholders.

For FY16, consolidated revenue more than doubled to Rs. 141 crore, from Rs. 54 crore in FY15. This led to EBITDA tripling to Rs. 36 crore, from FY15’s EBITDA of Rs. 12 crore. Thus, EBITDA margin improved 260 basis points to 25.6%, which is highly commendable.

After reporting consolidated net profit of Rs. 6.5 crore in FY15, its FY16 consolidated net profit jumped to Rs. 20.5 crore in FY16, translating into EPS of Rs. 104, on tiny equity of less than Rs. 2 crore.

The company enjoys an uninterrupted dividend paying record since inception – a feat which very few Indian companies can boast of, and definitely commendable for a real estate business, given its cyclical nature. For FY16, it rewarded shareholders handsomely, with a dividend of Rs. 10 per share.

Company has so far been announcing consolidated results only at the year end. Only since Q1FY17, has it started publishing consolidated earnings on a quarterly basis. However, consolidated earnings are extremely important, as the share of subsidiaries and associated not only increases revenue, but they also earn better margins.

For the first quarter of FY17, company’s consolidated revenue stood at Rs. 55 crore and EBITDA at Rs. 15 crore (28% EBITDA margin). Net profit came in at Rs. 9 crore, vis-à-vis FY16 net profit of Rs. 20.5 crore. Thus, the going has been simply superb for the three months ended June 30, 2016, wherein half of last year’s performance has already been achieved (despite FY16 also reporting over 100% YoY growth).

Consolidated Q1FY17 EPS for Eldeco Housing stands at Rs. 46. On a standalone basis, company has reported Q1FY17 revenue of Rs. 45 crore, EBITDA of Rs. 12 crore and net profit of Rs. 6 crore.

As of 31st March 2016, consolidated net worth stood at Rs. 88 crore. Company has total debt of Rs. 53 crore, all of which is short term in nature, to finance working capital needs. Consolidated balance sheet has cash and bank balance of Rs. 85 crore, which translates into net surplus cash per share of Rs. 164. A real estate company having surplus cash is indeed a rare phenomenon.

Encouraged by the excellent first quarter results, FY17 estimated EPS is seen close to Rs. 185 per share. Based on the current share price, the resultant PE multiple is only 3.7 times, on current year’s earnings. If we were to exclude net cash on hand of Rs. 164 per share, the resultant PE multiple works out to only 2.8x.

On topline of Rs. 200 crore, and net profit run rate of Rs. 36 crore, company’s market cap is only Rs. 134 crore, while enterprise value is just Rs. 102 crore making it a screaming buy. However, being a small cap stock, members are requested to not go over-board with respect to the exposure to this stock.

Disc: Have holding Stock.

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One name i could think of is Tara Jewelers
CMP : 38
Market cap : 90 cr
Cash in hand : 80 cr
Also Book value of 240 and PE of 3.5
Not aware of any other issues with company or the reason why its has such a low PE. If anyone is aware please update…

Disc: Invested

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https://prudentequity.com/index/proudentdetail/id/11

Have a look at this article which covers misdemeanours of the promoters of Edelco Housing.

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http://www.bhaskar.com/news/UP-MEER-defaulter-builders-list-released-by-greater-noida-authority-news-hindi-5413769-PHO.html?seq=1

Eldeco defaulter of 159 Crore.

Amit Anam

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Hi do you have the full list? Am not able to get it from the article.

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hi sammy,
the link you gave is the old story after that company changed a lot.

Now company showing profits on every quarter along with dividend.

Pros:

  • Stock is trading at 1.12 times its book value
  • Company has good consistent profit growth of 46.99% over 5 years
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If you rely on that news ignore Eldeco housing, CMP is 660 (SEP14, 2016). will get back to you in 2 months.

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Sure. I do hope it works out for you. Regards.

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hi all,

One evident mispriced stock available at the current juncture is

  1. Kalyani Investment - Holding company of Bharat Forge (at the CMP of Bharat Forge it should be atleast 50% higher)

Another Stock which I am studying right now is BLUE CHIP TEX (Researching right now- NO VIEWS RIGHT NOW in it)

Regards
Vinod Hada

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One company which looks undervalued is Hinduja Ventures, it has many subsidiaries, details as per article copied from blog :

Quote----

Hinduja Ventures Ltd: High Unused Bandwidth
I have covered most of the technical details of the business of Hinduja Ventures in the earlier post on it. It has already touched 450 from last recommendation at 396. I am just pasting the old analysis again to get the complete picture.

(It is one of the biggest player in digital cable tv (Incable) and invested huge amount in next generation cable tv via satellite, HITS via name NXT Digital. MSO like Siti, Den, Hathway, Incable are still far away from realizing the full benefit of digital cable tv. People are thinking that with digitization now they are getting full revenue from Local cable operators, but it is not the case, LCO are still paying them Rs. 60-80-100 per connection (earlier it was around 30-40) and retaining the balance. Fight is still on to decide who will bill the customer and the revenue sharing. So just hold your stocks of these MSO’s as we will see the real benefit coming in the future when a more logical deal will be stuck between both.

Hinduja has launched HITS via NXT digital for catering to phase 3 of digitization covering around 5 cr subscribers by Dec-2015. Phase 3 is related to small cities (phase 4 will cover most of rural india by Dec-16) where small Local cable operators work and they lack funds to move towards digital cable from analogues. They would need huge money for digital move for having digital access system, conditional access system and subscriber management system apart from expensive hardware. HITS can save all these costs for them…so chances are big that HITS can give DTH a run for its money as DTH falters in rain, DTH can’t show local channels which are a must in small cities. Even small Goa has 13 local Konkani channels.

Actually in TV broadcasting what happens is that a TV channel like Colors uplinks its signals to a satellite. An MSO like Den downlinks the channels signals from different broadcasters from different satellites at a place in a geography (take Bhopal in MP) which is called Headend ( huge cluster of dishes, a single dish for every channel) where they are bundled together and transmitted to LCO via cables who then distributes the same to our homes. But a single Headend cannot serve entire country due to cable costs, signal weakness etc so MSO have to install Headends in the entire country ( Hinduja has around 40 Headends) which is very costly.

However in HITS things are done in a different manner, here HITS operator downlinks the channels from all broadcasters at a single earth station from where signals are uplinked to a satellite used by HITS operator, so it is called Headend in the Sky, HITS. The HITS satellite further downlinks the signals directly to LCO or MSO, who will need just one Dish type transmodulator to transmit the signal directly to consumer via cables. So need for costly Headends will be reduced greatly which will benefit both the LCO/MSO and customers. HITS operator will also handle the Conditional access system and subscriber management system on their behalf which are also very costly and there is no need to install them at every Headend as in the case of a normal MSO. I am sure this HITS can compete with DTH in phase 3 & 4 of the digitization in india.

I will cover more details on HITS later on but just today read that Hinduja has already acquired 10 lac customers in first 3 weeks of the launch. )

Its MSO business and new age television broadcasting business HITS can target huge untapped potential and become a big force. Its MSO business under the brand name of Incable with around 10 million subscribers and around 600 cr revenues is a stable business which was a profitable one continuously in the past before digitization drive in which Incable like other MSO’s have invested high amounts for providing STB’s at subsidized costs resulting in losses in past 1-2 years. Its HITS business which is operated under its another subsidiary Grant Investrade Ltd (GIL) is in its initial phases but Hinduja group has high expectations from this business and they are planning to invest around 5000 cr in next 1-2 years according to the response generated. They have already invested around 500-600 cr. They have already launched their HITS platform via brand name NXT Digital in Phase 3 of the digitization and got around 10 lac subscribers in the first 2 months of launch.

NXT Digital will offer around 500 channels in MPEG 4 format and the number of channels will be increased to 1000 with set top boxes with recording facility. MPEG-4 allows a service provider to use less bandwidth for video transmission into the home, freeing up bandwidth for other things, including more HD channels, more VoD capacity, and better broadband Internet — all important attributes to have in a competitive marketplace.

They are expecting to get around 10 million subscribers for HITS in next 2 years. Earlier many biggies like zee via Siti cable tried their hands in HITS but only to taste failure. But now scene is different with different challenges as at that time there was no DAS system, no mandatory digitization which would make MSO and LCO to opt for a bit costly HITS although it was a great reply to DTH competition. So now I feel that HITS has all the foundations ready and it can really taste the success this time.

But in spite of these two very promising businesses, Hinduja ventures is way undervalued than most of its peers like Siti ( I am having it from 8/-), Den, Hathway. The first reason is the big investments in the books of HVL, in fact these are valued much more than the current market value of HVL of Rs. 900 cr. Lets add these investments:

A. Shares of Indusind Bank: it is holding 2960196 numbers of shares of another group company Indusind bank. At the current prices these are valued around 285 cr. It is also holding 13416 nos. of shares of other group companies like Gulf oil and Gulf Lubricants; but I am leaving these due to small size. Another holding of 6957580 shares of Indusind Bank is pledged with banks for taking loans which are valued at around 626 cr. So total holding is 285+626=911 cr.

B. Holding in Hinduja Leyland Finance Ltd: It is the financing arm of Ashok Leyland. Its net profit in 2014-15 is 111 cr up from 81 cr in 2013-14. So taking the growth factor and Ashok Leyland being 2nd largest player in trucks, I am valuing it conservatively at 20 times, making it a 2200 cr company. Out of around 38 cr shares, 2 cr is held by HVL so valuing it around 230 cr.

C. Land holdings at Bengaluru and Hyderabad: it is having big land holdings of 4.75 acre and 47 acre in Hyderabad and Bengaluru respectively which are developed by a joint venture group company Hinduja realty venture. I am valuing these around 500 cr at low end.

D. Investments in Hinduja Energy india ltd: it is having 10% share in Hinduja energy india ltd at a cost of 187 cr which is developing power plants in india. Its 1040 MW plant at Vishakhapatnam is in final stages. Due to lack of data, I am valuing it at cost of 187 cr.

E. Cash in the books as on 31.03.2015 was 84 cr.

So by adding A+B+C+D+E, 285+626+230+500+187+84= we are getting 1912 cr which is way higher than current market value of 900 cr. Most amazingly we are getting much valuable MSO and HITS businesses for free which are in fact valued much more than this investment part.

Hinduja ventures has around 10 million subscribers under Incable.net for its MSO business (I am leaving out potential HITS subscribers just in order to be conservative). Siti cable with around same set of subscribers is valued around 2350 cr, Den with around 14 million subscribers valued at 2000 cr, Hathway with around 12 million valued at 3400 cr. All of these have around 800-900 cr debt in the books except Den with 400 cr. So we can easily take 2000 cr value for HVL’s current Incable.net business which will make the value proposition to 1912+2000=3912 cr. And it is without any value for HITS business and without giving any value for the high growth future for MSO business which will grow at high rates due to solution of problems related to billing with LCO.

So just compare the Current market value of 900 cr to our conservative estimates of around 4000 cr indicating huge unused bandwidth. It is still a good investment at CMP of 441/- and add at every fall.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

unquote—

Disc : added at 450 last week. (total 7% of my eq portfolio)

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Had a quick look at standalone cash flows generated by the company (source: screener.in) and it looks like though the company is reporting big profits but they are not translating into any cash flow and this is a big negative. Do you have any insights here ?

Pasted image1034×85 4.75 KB

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And THIS is how we catch creative accounting… :wink:

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can u pls share the link for source blog!!

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Security Code : 500189 Company : HINDUJAVEN

Updates on Outcome of Board Meeting Download PDF 26 Oct 2016 19:44
Hinduja Ventures Ltd has informed BSE that the Board of Directors of the Company at its meeting held on October 26, 2016, inter alia, has approved disinvestment of 10,00,000 equity shares of Rs. 10/- each held in Indusind Media and Communications Limited [IMCL] (1.35% of the paid up equity capital of IMCL), unlisted material subsidiary of the Company for total consideration amounting to Rs. 46.60 Crores i.e. at a price of Rs. 466/- per share to a third party, based on IMCL equity valuation of Rs. 3444.06 Crores as per independent valuation by third party.

The holding of the Company in IMCL after disinvestment will reduce to 447,58,583 equity shares i.e. 60.56% (as against 61.91%) of the paid up equity share capital of IMCL.

Further, the Board has decided to sell 61,147,056 equity shares of Rs. 10/- each held by the Company in Hinduja Energy (India) Limited and has appointed a committee of directors to look into this matter.

(Value unlocking has started to happen)

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Hinduja Energy (India) Limited (HEIL)
Your Company remains invested in the power sector through its stake of 15.57% for ` 187.10 Crores
in HEIL- holding company of Power Assets of Hinduja Group. This translates in to 8.59% effective
holding in the SPV- Hinduja National Power Corporation Limited.
Hinduja National Power Corporation Limited (HNPCL), a subsidiary of HEIL recently commissioned
a 1,040 MW Greenfield Power Project at Palavalasa Village in Visakhapatnam District of Andhra
Pradesh. The project has 2 x 520 MW coal-based thermal power generation units with technology
offered by EPC contractor Bharat Heavy Electricals Limited (BHEL). HNPCL has recently commenced
commercial operations thereby fully mitigating the construction risks. The operating risks have been
mitigated by entering into an O & M Agreement with Steag O & M Company Limited, a subsidiary of
a German power major, Steag Energy Services GmbH. HNPCL has entered into a long term power
purchase agreement with AP Discoms for sale of 100% of energy generated by the power station
with an assured return on cost plus basis in accordance with the guidelines issued by the Andhra
Pradesh state regulator. HNPCL also has the benefit of pass through of fuel cost. This will enhance
the value of your Company’s stake significantly

(From AR)

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Stay away from posting one liners. Put up some details behind your mispriced bets.

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Can we please have a current version of this debate of medium term mispricing from the experts?
For me

  1. GAIL: big overhang of demerger / creation of distribution subsidiary and also expensive gas contracts (which looked lucrative a year ago) - this overhang should disappear with time or once demerger is announced. This Co holds valuable gas pipeline and assets and should be trading at much higher than book value

  2. Diamines and Chemicals- Alkyl amines is selling its stake in this co. And hence the stock tanked 13 percent on Friday. This will disappear with time I think

  3. Aurobindo Pharma: too much regulatory overhang on this , but no doubt its there for a reason. I feel all bad news are priced in at around 400 levels

Best,
C

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I think all holding companies are mispriced , Bombay burmah, Bajaj holdings, Maharashtra scooters, godrej industries, pilani investment, kalyani investment… All these are mispriced to the tune of 50%… Most are holding good companies in them… i read that globally discount for holding companies is much lesser but in india due poor corporate governance, the discount is much higher… This could reduce in future as the regulation is maturing yoy

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Glenmark Pharma

Reasons -

– Stock has seen lot of over reaction to Baddi Facility USFDA …official Action indicated
– More of shorting speculative in nature than change in actual business fundamental
– Stock is at 8 year low of 270-280… And has rebounded with huge volumes
– Q2 results posted were better than expected on all fronts
– US Monroe Facility commercialization will reduce capex going forward and it’s a big trigger for Glenmark
– Non core assets monetization and partners for new launches will reduce the burden of expenses and debt . We can see some sort of announcement on those fronts in second half of FY20
– Last and most important one…during 2009 stock had corrected about 80-82% of its all time highs and today’s correction is similar (80 percent being at 240-250 levels) which can act as strict SL .

So a very likely candidate of re-rating going forward

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