Base Price Shifts Upwards to Rs. 450
My Reply to a Query on Riddhi`s Q1 results on some other Forum :
You are very right in your saying that it will be wrong to extrapolate one quarter performance to others but one fact everybody should remember is that earning in stock market is clearly the byproduct of near-to-correct projection of the things to come and for that you need to closely look at the history and precisely project the future. In that, although you can`t take 1st qrtr. performance as a benchmark for entire Fy projection but when, in a lean qrtr., company performs well then looking at its history you can easily say that in other qrtrs. it will perform better than the lean qrtr. Agreed, NPM might fluctuate qrtr. to qrtr. because of the change of product-mix as well as other parameters but the figure of NP that Riddhi has aceived in 1st qrtr. itself clearly suggests that FY11 will see a robust NP figure which will ultimately translate into retiring of some debt and provide financial muscle for sustainable future-growth of the company. The net profit figure (after deduction of extraordinary gains) of 27 cr. of Q1 is more than half of that reported in entire FY10 and this thing you can`t ignore. Now, evenif Riddhi reports modest NPM as reported in Q3 and Q4 of Fy10 then also you will see a NP figure of 70 cr. easily getting crossed in FY11 which will translate into an EPS of Rs. 60 + for FY11.
To get to your other point of not benchmarking valaution on trailing PE, - with a certain EPS of Rs. 60 + for FY11 and the industry leader status which Riddhi enjoys, it can certainly not trade on a valuation which is at a discount to its smaller peers like Sukhjit, Gujarat Ambuja Exports, English Indian Clays or Universal Starch. All of Riddhi`s peers are historically trading at an average PE of between 7.5-9.5 and even Riddhi has historically traded between 7-8 PE. Hence, by applying a simple logic of an industry leader trading on par with its peers, if not at a premium, one can easily set a base price for Riddhi at around Rs. 450 which entails to a PE of just 7.5 based on conservative estimate of Rs. 60 EPS for Fy11. Any rate below Rs. 450 suggests undervaluation of Riddhi and so the word used is `base price`.
In few months from now, one can easily see Riddhi stabilising at a price band between Rs. 430-500 and if Q2 performance is reported as robust as Q1 then no one can stop significant rerating of Riddhi in FY11 itself which might see Riddhi trade at a premium to all its peers which translates into a price which will be much higher than the base price. We have a multibagger in our hands.
My Reply to a Query on Riddhi`s Q1 results on some other Forum :
You are very right in your saying that it will be wrong to extrapolate one quarter performance to others but one fact everybody should remember is that earning in stock market is clearly the byproduct of near-to-correct projection of the things to come and for that you need to closely look at the history and precisely project the future. In that, although you can`t take 1st qrtr. performance as a benchmark for entire Fy projection but when, in a lean qrtr., company performs well then looking at its history you can easily say that in other qrtrs. it will perform better than the lean qrtr. Agreed, NPM might fluctuate qrtr. to qrtr. because of the change of product-mix as well as other parameters but the figure of NP that Riddhi has aceived in 1st qrtr. itself clearly suggests that FY11 will see a robust NP figure which will ultimately translate into retiring of some debt and provide financial muscle for sustainable future-growth of the company. The net profit figure (after deduction of extraordinary gains) of 27 cr. of Q1 is more than half of that reported in entire FY10 and this thing you can`t ignore. Now, evenif Riddhi reports modest NPM as reported in Q3 and Q4 of Fy10 then also you will see a NP figure of 70 cr. easily getting crossed in FY11 which will translate into an EPS of Rs. 60 + for FY11.
To get to your other point of not benchmarking valaution on trailing PE, - with a certain EPS of Rs. 60 + for FY11 and the industry leader status which Riddhi enjoys, it can certainly not trade on a valuation which is at a discount to its smaller peers like Sukhjit, Gujarat Ambuja Exports, English Indian Clays or Universal Starch. All of Riddhi`s peers are historically trading at an average PE of between 7.5-9.5 and even Riddhi has historically traded between 7-8 PE. Hence, by applying a simple logic of an industry leader trading on par with its peers, if not at a premium, one can easily set a base price for Riddhi at around Rs. 450 which entails to a PE of just 7.5 based on conservative estimate of Rs. 60 EPS for Fy11. Any rate below Rs. 450 suggests undervaluation of Riddhi and so the word used is `base price`.
In few months from now, one can easily see Riddhi stabilising at a price band between Rs. 430-500 and if Q2 performance is reported as robust as Q1 then no one can stop significant rerating of Riddhi in FY11 itself which might see Riddhi trade at a premium to all its peers which translates into a price which will be much higher than the base price. We have a multibagger in our hands.
