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Saturday, April 24, 2010

Gujarat Ambuja Exports: What is the ideal stock price for GAEL

Gujarat Ambuja Exports (GAEL) has been on a tear lately..
Closing Price: April 19,2010: Rs 16.40
Closing Price: April 23,2010: Rs 26.70
Thats a rise of 62.8% in 4 days. Infact on April 23,2010 the stock was on circuit.
NSE : 31,058 pending buy orders at 26.90
BSE : 61,513 pending buy orders out of which 1000 buy orders at 26.80.

The top question in our minds is:
1. What is the ideal sell price for GAEL stock that we own?

Let us step back in time and look at the buyback scheme that was launched in April 4,2007 and the buyback scheme (link) closed on Jan 15 2008
April 4,2007 Closing price of GAEL stock: 26
Jan 15,2008 Closing price of GAEL stock: 83.45

GAEL had started the buyback with the intention of buying back equity worth 26.25Cr at a maximum price of Rs 38 per share ie it had a mandate to buyback 69,07,894 shares (assuming the buyback happened at the highest price of 38 per share)

The buyback was successfull in buying only 9,66,615 equity shares at an average price of 34.26 only 13.99% of the mandated buyback amount. During the buyback period the stock moved from 26 to 83.45

Now ideally a company of GAEL stature should be selling at one times sale.
Enterprise Value = 1 times Sales
March 2009 Sales: 1610.91Cr
Current Enterprise Value: Market Cap + Debt -Cash-Cash equivalents
Current (CMP: 26.70) GAEL Enterprise Value: 369.4Cr(Market Cap)+90.32(Debt)-11.69(Cash)-26.21(Cash Equivalents) =  421.82Cr

To have an Enterprise Value equal to 1 times Sale (1610.91Cr) the Market Price should be: 1558.49Cr that would translate to stock price of  Rs 112.64. So the Ideal sell price for GAEL stock is: 112.64.

The stock however could face stiff resistance around its 52 week high of 36.20and its Jan 15,2007 closing price of Rs 83.45
I can fully understand that these target prices (112.64 and 83.45) are a tall order. Most likely the stock would be out of our hands much before these numbers. Having said that 38-40 levels is given for the stock and one can confidently target 38-40 levels in 12 months time frame (hopefully sooner). Levels of 83 and 112 are for very long term players who are comfortable with GAEL's management and business model.


Mahesh said...

Prahalad Sir,

You are hard core fundamentalist and value investor :).

Thank you.

Mahesh said...

Sir How did you calculated "26.21(Cash Equivalents)" this figure. Please let me know, i like EV calculations :).

Thank you

What'sUp Prahalad said...


Cash equivalents is the total quoted investments in the annual report.
It is a subset of the investment in the balance sheet (31.9Cr)

The link to GAEL annual report 2008-2009 is here

=happy investing

Mahesh said...

Prahalad Sir,

Thank you for your feed back :)