Buy Hitech Plast, says Ashish Chugh

Chugh told CNBC-TV18, "Hitech Plast is a small company promoted by the promoters of Asian Paints. The Dani family through their companies and in their personal capacity together hold about 67% stake in this company. This company manufactures plastic containers and bottles which are mainly used by paint, healthcare, FMCG, pharma and lubricant sectors. But the bulk of the revenues of the company come from the paint sector. The company has got 16 manufacturing facilities located in 12 cities and this company recently set up Rohtak, which is a big facility and also a facility in Uttarakhand."

He further added, "If one looks at the financials of the company, the FY12 sales were close to Rs 350 crore, with a Profit After Tax (PAT) of Rs 14.25 crore and EPS was Rs 11. In the first 9 months, sales have gone up by about 15% to Rs 292 crore, PAT has declined by about 20% to Rs 9.3 crore."

"If one looks at the financials of the company from a longer-term perspective, in the last five years, the sales of the company have grown by about more than 20% and same has been the case with Profit Before Tax (PBT) and PAT which have again grown by a CAGR of about 20%. In the first 9 months of this financial year even though sales have increased by about 15% PAT is down by 20%, this is mainly on account of the fact that debt has gone up and the interest cost of the company is 50% higher than the same period last year."

"Now this debt has gone up mainly because of the new capex which the company did in the past two years and the full benefits have really not started coming in as yet. This maybe because of a lag effect and in times to come the performance of the company and the sales of the company may catch up with higher interest outgo. At the current price of Rs 55, the stock is available at almost its two years low. The two years low is close to Rs 53-54."

"So at Rs 55, the stock has come down to its two year low mainly because of short-term concerns which are there. There are concerns on account of higher interest costs and also concerns on account of crude prices being up because of which the raw material of the company gets expensive. I believe these negatives maybe fully factored in at the current market price. You have a steady business bagged by good management, which is available at reasonable valuations. So I think at the current price of about Rs 54-55 this stock warrants a buy."