Does anyone have a thesis on the significant price correction? From insider trade transactions it looks like Kamlesh and Mukesh have been increasing their share (through warrant conversion) whereas other insiders have been net sellers. Though most of the warrants have been converted (some 35 L of 47 L) still the price continues to be range bound.
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Here is my estimate of where this stock is headed:
- If you add the EPS of last two quarters it’s ~15 rupees, so I estimate the extrapolated forward-looking yearly EPS at ~30 rupees. (This assumption of 30 rupees EPS is based on multiple tailwinds for this sector noted in a later bullet point of this post).
- At ~30 rupees yearly EPS (which is conservative given the growth expected in this sector), the stock is trading at ~5 PE (at the time of writing this post the stock price was in the range145-150)
- Even after dilution through warrants, this PE of 5 will at most become 6. Here is the math behind it: Before warrant conversion the company had a total of 3 crore shares, and a total of 47 lakh warrants were issued. So at max the total shares will increase to 3.5 crore, which is an increase of ~17%. So, [new EPS] will become [old EPS]/1.17, i.e. ~26 rupees, which dilute the PE to ~5.8.
- Other stocks like Orient and Somany which are inferior to AGL in some respects are trading at a forward looking PE of ~30. The view is personal – I’d rate AGL superior to Orient Bell and Somany Ceramics.
- You can argue that AGL isn’t at great a brand and should trade at a lesser PE of say 18, even in that case the stock should trade at 150 x (18/6) = 450. BTW, median PE of AGL is ~18 in 3 year look-back period; further it kissed a max PE of ~40 in this same time period.
- 450 is a very conservative number here, because there are other tailwinds at play:
- Anti-dumping duty on Chinese products imposed by US (for industry)
- AGL starting a new plant later this year to boost top-line
- AGL is the largest exporter among all Indian players
- AGL has an edge being in quartz business
- On the higher side, I estimate the stock to trade at an PE of ~40 which means a stock price of 150 x (40/6) = ~1000 rupees
Asian Granito’s Indian and global ambitions
Very interesting talk by AGL’s Prafulla Gattani which talks about tailwinds for the industry in the coming quarters.
Disc.: invested, so my analysis could be biased