Random Thoughts

Growing things 1

The current thrust of the Indian government on infrastructure along with booming manufacturing and construction sectors is expected to have a trickle down effect on wires and cables sector in the country.

Among these companies, Paramount Communications is depicting faster growth. The company may repeat its last year’s double jump in sales and profits in 06-07 as well. It has undertaken capacity expansions and is having strong presence in the railways and power sector. Moreover, the company’s P/E is just below 9.5. This is quite a conservative valuation when compared to other wires and cables companies. If we consider a two-fold jump in PAT for 06-07, then at the current P/E, the stock of the co can earn over 40% returns by the end of FY07. Further, possibility of improved valuations (i.e. higher P/E) can not be neglected. This may add further zing to the story.

One issue of concern: the company has a substantially higher net working capital cycle compared to its peers. This is due to higher cash collection period. Thus, the company’s cash flow from operations is negative and is funded by borrowings.

Disclaimer: As of 18 December 2006, neither I nor my immediate family owns shares in Paramount Communications.

Labels: Money matters

posted by Ranjit @ 12/18/2006 10:46:00 am