Portfolio Manager PN Vijay picks AVT Natural and IRB Infra as multibaggers stocks for the day. He sees both stocks earning better returns ahead.
Below is the edited transcript of Vijay's interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.
On AVT Natural
AVT Natural is a south based 100% export oriented company.They export marigold products, marigold flowers and marigold oleoresin. They are one of the world's largest exporters of vanilla. The vanilla pod is grown by them. It is an additive in ice-creams and desserts. They also have a package tea exports division.
It is one of the very few examples of contract farming in India where corporate sector owns the farms, makes them and exports them or for domestic. It is a bit like Karuturi except that Karuturi did all these global expansions and got into trouble. AVT has got a long history. It is not a new company, it has been in the business for a long time. Their profit growth has been very impressive. It is a small company.
They closed the last financial year at about Rs 140 crore topline and about Rs 11 crore bottomline. But in this half year, profits have gone up five times though the sales have gone up only twice. They have global collaborations. The world's biggest producer of marigold oleoresin and marigold seeds is their partner. So, on the ground they are very firm. They have very specialized products and have one of the most de-risked agro based contract forming businesses.
The de-risking they have done to their businesses against the vagaries of monsoon and all are very impressive. The stock like many other smallcaps stocks has corrected viciously on selling by retailers. It is now standing and dicing near at about Rs 300. We are predicting in earnings per share of about Rs 50 this year. So, we are talking about current PE of six which is even for a smallcap very attractive.
I should say as a risk factor, this is a bit of an agro-based business and also that hits the smallcap stocks, so the risk level is more. One has to take the risk as it comes. But given these factors and the present optimism about small and midcaps in the environment, I recommend a buy on this with a target of Rs 500 in the next 15 months.
On IRB Infra
After about 18 months I have got an infrastructure stock on my buy list. Like the rest of the world community, I am slowly increasing the beta in my portfolio. If one were to pick good infrastructure stock to ride a possible turnaround in the Indian economy in the next two years, IRB would be a candidate. IRB is in the build, operate and transfer activity, confining itself to highways and roads.
It is in that portion of infrastructure. It doesn't do anything else like urban development and so on. It has been one of the biggest players in the golden quadrilateral concept. It has more than 10% market share on the kilometers of the golden quadrilateral. Last quarter it did fairly well. The topline went up impressively, the EBITDA went up only about 35%. The net profit went up only about 22% because there was about Rs 4,200 crore of debt on their books which was beginning to hurt a bit.
So, the topline growth didn't translate itself into the bottomline growth. But going forward, they have two cash-cow. One is the Mumbai-Pune Expressway on which they have got a very strong toll increase of 18% recently. Also the Bharuch-Surat-Dahisar Expressway, on which also they have got a very handsome toll increase from the Gujarat government. Their toll incomes are pretty steady and growing. They are starting work on very mega Ahmedabad-Vadodara link which is one of the most profitable links in the country.
Once that gets going, it will be very good. I am just betting that with interest rates starting to slacken, the topline growth which is there, they have got an order book of about Rs 96,000 crore would translate into a better bottomline. I would warn investors that buying infra stocks at this time even though the valuations have corrected viciously, 40% in the last one year is fraught with various risks of buying infrastructure stocks. At about Rs 135-140 or so I would say IRB on a two year timeframe should go up to about Rs 250 in about two years time.
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