Sometimes a contrarian bet to buy shares that are falling or have fallen steeply in the past few weeks, may yield good returns.
Kaveri Seeds share price has lost almost a third of its value since hitting a 52-week high of Rs 1075 in March. A few things have gone against the company. One is that the quarterly results were not up to the market and revenues came in weaker than expected.
There are worries that the company will have to pay a royalty to Monsanto, which could be a hit of close to Rs 64 crore for which the company has not made any provisions.
A deficit monsoon has hit cotton acreage, which affected the company's performance. However, the company's share price has fallen steeply from Rs 1075 to Rs 525 owing to these factors. This means that worries over these problems may have been priced in already.
Even under a worst case scenario the company could report an EPS of around Rs 40 for FY 2015-16. This implies a price to earnings multiple of just over 13 times.
The company deserves higher p/e multiples for a number of reasons. One is that Kaveri Seeds is a cash rich and is a debt free company. Cash and balances on books is close to Rs 250 crores.
Second is that the company is in a very niche field with very high entry barriers. A small equity base makes the shares of Kaveri Seeds a compelling buy.
Shares of Tata Motors like Kaveri seeds has fallen sharply. The shares have dipped from Rs 605 to the current price of Rs 350. The one and only one reason for the sharp fall is the worries over growth in China. China is the biggest market for Tata Motor's Jaguar Land Rover range and lately there have been worries over Chinese growth. This is one reason we have seen the stock has fallen as the results were also poor on account of the Chinese performance.
However, the shares of Tata Motors at current price of Rs 350 and near a 52-week low is at just 10 a price to earnings multiple of just 10 times one year forward.
The company certainly deserves a higher p/e multiple considering the solid JLR brand that it owns and also a solid presence in India's domestic market. The shares are a good bet at the current levels.
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