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Tuesday, June 3, 2008

Hot midcaps picks in next outperforming sector

Ashish Chugh, Invesment Analyst and Author of Hidden Gems likes Venky's India - it's the market leader in the poultry segment and he believes the increase in commodity prices may lead to increase in demand for poultry products. It's trading at a very reasonable PE of 5 times and has a reasonable market cap of Rs 140-150 crore.
Another one of his picks is Indian Hotels where valuations are attractive and is available at a market cap of Rs 8,000 - 9,000 crore. He thinks the hotel sector could be an outperformer in years to come.

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Excerpts from CNBC-TV18's exclusive interview with Ashish Chugh:
Q: Your first pick today is Venky’s India. Why do you like that story?
A: One stock I like is Venky’s India, the reason is that this company is a leader in its business segment. When one thinks of poultry, Venky’s is the number one player in the industry and this is an industry where you can’t even think of number two. So the business is very good. What is happening now is that we have seen increase in commodity prices lately. Prices of all commodities - be it rice, wheat or vegetables are going up. I think this is going to lead to increased demand for poultry products, of course the risk in their business may be the bird flu news coming off and on, which spoils the sentiment in the company and the industry and the second risk is the increasing maize prices.
I believe that this company will be able to pass on the increased maize prices in the form of higher poultry prices because of which, the prices of poultry products can go up in the future.
So this is a company where we like the business, we like the leadership status of the company, that fact that it is a scalable business, the fact that it is trading at a very reasonable price to earning ratio of about 5 and a very reasonable marketcap of just about Rs 140-150 crore, so from these levels the downside looks restricted, but this could give superior returns to the investors.
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Q: You are very bullish on hotels as a space; tell us why you like midcap hotel stocks and which ones you would pick out?
A: Another sector, which we like is the hotel sector. The reason for that is that this sector has been an underperformer in the last two to three years. So the downside from these levels look low given the fact that most hotel companies are coming out with record performances. The second aspect is the potential of the business; all major hotel retail chains want an entry into India and asset creation, which is now happening at much higher prices because of higher land prices and higher commodity prices like higher steel and cement prices and established hotel companies will reap good benefits in the next two to three years. In the sector, we like the leader which is Indian Hotels.
Indian Hotels is available at a marketcap of Rs 8,000-9,000 crore and we believe it is going for a song. Most other hotels like Kamat or East India Associated or for that matter smaller companies like Savera Hotels, we believe are available at a very attractive valuations. So we think that this sector and many companies in this sector could be outperformers in the years to come.
Source: Ashish Chugh’s interview exerpts in Moneycontrol website

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