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Saturday, December 6, 2008

Marg Ltd. - Hidden Gem For Investment

Marg Ltd is an interesting stock, which we don’t often talk about. Checkout the story there...

Marg is an infrastructure stock. This is in a sector which is out of favour as of now and there is a lot of negative sentiment surrounding this sector.

The company is into infrastructure as well as real estate. This company is into development of ports, airports, SEZ and they also into development of commercial and residential real estate. Most of their projects are in and around Chennai.

This stock had touched a high of about Rs 630 in January and currently trades close to Rs 35. It has dropped about 95% from its high, which it had touched early this year.

This is inspite of the fact that if you see the financials of this company, there has practically been no deterioration in financials till now.

In fact in the first six months of the current financial year, sales are up by about 80%, profit after tax (PAT) is up by about 42%, and the tax payment for the first half is more than double of what they did in the first half of last year.

Now, despite of any deterioration in the financials of this company till date, the stock price has dropped by about 90%. This drop in stock price is mainly because of negative sentiment surrounding this sector. Nobody wants to buy real estate or infrastructure today.

This is primarily on account of two things. One is fundamental factors. There has been a slowdown in the economy, stock markets have come down, and there has been a liquidity position which is getting worse by the day.

But having dropped by about 95% from its high, the major part of this decline seems to be on account of other factors like fear psychosis, which is surrounding investors. There is definitely a lack of confidence among investors in the market.

Even then I am not ruling out the possibility that in the next few quarters there could be a decline in the profits of the company, but that factor is already getting factored in the stock price. The current market capitalisation of the company is just about 90 crore, which is less than one year of operating profits.

As on March 31, 2008 the book value of this company was Rs 121 crore. As against the book value of Rs 121 crore, the stock trades at close to Rs 35 which is roughly 25% of the company’s book value.

From a current price, even if deterioration in the economy were to happen, the downside looks extremely restricted. In the case of liquidity easing off, these kinds of stocks can bounce back very sharply from their current levels.

The book value – even if you look at the gross block of the company ‑ is close to about Rs 425 crore. Given all these factors and that the stock has dropped about 95% from its high to Rs 35, the downside looks very restricted, and in case of conditions becoming slightly favourable, these stocks can jump up by 50-100-200% also in a short period of time.
Excerpts from Ashish Chugh's Interview on MoneyControl

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