Betting on Gujarat Power, Ashoka Buildcon: Gaurang Shah, Geojit BNP Paribas

In a chat with ET Now, Gaurang Shah, Geojit BNP Paribas, says the companies catering to the core sector, reflect the mood of the economy. Edited excerpts


ET Now: Your first strategy. Tell us why do you like Gujarat Power?

Gaurang Shah: The first one is in form of Gujarat Industrial Power Company Ltd. This company has got somewhere close to about 850 MW of power generation capacity and there is some amount of efforts by the management to increase and invest in capex given the presence that this company has in Gujarat and of course the focus of the government to provide 24 x 7 supply to each and every village and household farfetched.

We believe that this is one company which has been reporting satisfactory quarterly numbers and with a capex that is likely to be added, we understand that the growth prospects and earnings visibility is going to improve significantly. A large part of the revenue close to about 99.58% comes from energy side and the balance miniscule comes from other operating revenues. The plant availability factor is above 85% for all its facilities and plant load factor is also significantly at a better level. There was slight bit of concern in one of its facilities in Surat wherein they suffered some amount of disruption in operations and for which the company had also made certain provision. As of now the statement from the management is that the provisioning made at that point of time is sufficient enough and there is not likelihood to be any further provision that are likely to be required thereby it offsets any kind of negativity on the earnings. We have a conservative target of 135 on Gujarat Industrial Power Company Ltd. this is from a long term point of view.

ET Now: What is the next stock that you like?

Gaurang Shah: The second one is a recent listing associated with infrastructure, Ashoka Buildcon is the company that I am speaking about. Significant traction post listing and great investor interest from a long term point of view. It is one of the largest players in India as far as the construction of highways, roadways and express ways is concerned. It has got a very impressive portfolio of 28 public private partnership projects, is present in nine states, executes projects for not only state level but even at centre and national level, the orders that they get.

It has got tremendous amount of execution capacity, debt on the balance sheet is not a huge concern and the management was quite vocal when the pre IPO and post IPO listing commentary and of course after that they have been able to garner and add to the existing strong order book that they have. With the initiatives that the government is taking and of course with the impressive portfolio that Ashoka Buildcon has in its portfolio, we believe that timely execution is definitely going to add to the profitability of the company and of course with the efforts that the government is putting in to ease the congested and chaotic situation in the infrastructure sector, we believe that niche companies and healthy balance sheets like Ahsoka Buildcon are one of the significant beneficiaries over the mid to long term time horizon.

So from a mid-term time horizon, we have set across a target of Rs 185, a very conservative target and if somebody has got a longish time horizon, then on fallback of improved visibility on earnings, we are quite sure that targets will get revised upwards for Ashoka Buildcon.