Ashish Chugh, Investment Analyst & Author of Hidden Gems is of the view that one can buy Lanco Industries with one year perspective for a target of Rs 150.
Chugh told CNBC-TV18, "This is a company which is a part of Electrosteel Castings group and manufactures ductile iron pipes. This is play on India's infrastructure story. Ductile iron pipes are used for water and sewage applications. If you look at Lanco Infra, this company has done huge capacity expansions in the past five years. Ductile iron pipe capacity has been increased by three times from 60,000 tonne to 1.8 lakh tonne; it has put up a pig iron plant and also coke oven plant and the best part is that everything has happened without any equity dilution which is very good for the shareholders in the long-term. Given the government's thrust on sewage and irrigation, infrastructure projects, I think the demand for these pipes is expected to remain buoyant at least for the next couple of years also there is support from agencies like World Bank for sewage, irrigation and water projects. If you look at the financials of the company, first nine months even though sales are up by about 14% profit after tax is up by 250% to about 45 crore, annualised earnings per share (EPS) will be close to Rs 15-17. So at the price of close to Rs 62-63, the stock is going at a PE multiple of just about 4, which is undervalued for a company where the demand for the product is good and where so much capacity expansion has happened without equity dilutions."
He further added, "It is difficult to call the price on a monthly basis but this is a company which is expected to do am EPS of Rs 15-16 this financial year and there is a business which is expected to grow and the demand for pipes is not going to vanish away, it is going to remain. So I see that earning expansion and also PE expansion happening in case of Lanco Industries. So assuming a PE of 8 and earning of Rs 20 next year, 30-35% increase in earning, would give it a price target of close to Rs 150."
THomas
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