Yet another low risk high return investment idea from our beloved Kukkuji is Zenith Fibres Ltd. Zenith Fibres is not only doing well, but its ultra-low cost expansion along with its compelling valuations and 12 year dividend track paying record make it a compelling buy.
In this video interview Kukkuji explains his rationale for being bullish on the stock. For the benefit of our viewers the rationale is enumerated below the video.
What makes Zenith Fibres Ltd a screaming BUY?
- Zenith Fibres Ltd (ZFL) has undertaken a very opportunistic expansion in its propylene business by buying out a manufacturing plant from the crisis ridden Europe at a throw away price of Rs 2 crore. On this paltry investment of Rs 2 crore ZFL is expected to achieve a turnover of Rs 50 crore on an annual basis. The capacity is expected to kick start anytime soon.
- Even without the expansion ZFL had achieved a ~100% yoy growth in net profit for the Q1FY13. The EPS for Q1FY13 works out to Rs 3 and with the added capacity it expects to achieve an EPS of 13-14 per share for the full year FY13. At the CMP of 36 this works out to a PE of a little less than 3 – clearly indicating that the stock is going extremely cheap.
- The Book value of the stock is around Rs 46 and hence the stock is available at a significant discount to book signifying low downside risk.
- ZFL has a dividend paying track record of more than 12 years. Last year ie in FY12 the dividend was upped from 15% to 20%. Considering the rosy prospects and cash balance of RS 14-15 crores and the stock having a market cap of merely Rs 18 crores, there is every chance of the ZFL management increasing dividend payout in the future.
- Further the stock has a very high ROCE >25% coupled with a very high replacement cost.
This heady concoction of strong fundamentals, attractive performance parameters, compelling valuations and strong dividend policy clearly makes this stock an undervalued low risk high gain investment pick.
More information on Zenith Fibre can be obtained from its website.
Disclosure: Kukkuji holds all the stocks mentioned in the video interview.
A brief video introduction of Kukkuji.
Kukkuji has done several video interviews with Winning Trades | Low risk trading strategies for the Indian markets in the recent past.
- Four Principles of Stock Selection: Video interview of Kukkuji
- Video interview: Kukkuji of ISG offers 3 low risk high return investment ideas
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Disclaimer: The views expressed in this article are entirely my own and do not reflect the views of my employer. This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither http://winningtrades1.com or myself accepts any liability arising out of the above information/articles.
|Vinit Bolinjkar Head of Research, Ventura Securities Ltd|