Is Jaypee Infra a multibagger idea at this valuation?

Indian stock market is having rare gems among many stones. Investing on these gems can give huge returns. But there are times when investing on wrong companies hoping them to be multibagger can erode a person’s investment. Hence, it is advised to invest in companies after researching from various sources.

Multibagger stocks are the ones which gives multiple returns in few years of time. (Learn more about multibagger stocks)

I start with a disclosure. I hold shares of Jaypee Infra. So this article should be read keeping this in mind.
Jaypee Infra, which has huge land bank in Delhi and NCR region was struggling for a long time. One of the big reasons was the debt it was sitting on. Markets have punished companies which have taken a huge debt and the same is reflecting in price of many stocks.

The bad policies of the UPA government has not only disappointed the businesses but many small and medium investors have seen their wealth eroded. Companies had the jugaad of getting almost unlimited loans and many companies started the malpractice. But when the time was ripe for returns, companies could not make it and few found themselves in death trap.

Strange enough, Jaypee Infratech, seemed to be one of them. It would be interesting to note that this company was trading at Rs 100 in 2010 and then fell down to as low as Rs.9 now. Although, the shares had a good times in between but the larger picture was definite south. Many analysts have given hopes on it and have asked investors to book their losses and seek new companies.

But there are news and indications which suggest that this stock can give good returns. First of all, Jaypee Infratech is having one of the largest land bank in and around Noida. Their investment in Yamuna Expressway can fetch good returns in the long run.

One of the key issues faced by the company was that it was not allowed to construct near Okhla Bird Santuary. Now with National Green Tribunal ruling to allow construction near Okhla Bird Sanctuary will enable the company to give possession of close to 5,000 houses immediately. The sale has started and the company will get Rs 3,000 crore over 3 years. This can boost the sentiments.

Unlike most loss making companies, promoters still hold around 75% stake in the company which shows how confident they are even at the worst of the times. Add to that FIIs and DIIs, the foreign and domestic institutional investors, possess 5 and 10 % of the stake respectively. So only about 13% is available to the general public.

Even the brokerage houses like Motilal Oswal has given a buy call will target Rs. 65 in 2013 (though they have been reducing targets and in November 2014 gave a target of Rs. 31). Motilal Oswal, one of the most trusted companies, has a track record of identifying many multibaggers and this can be one of them.

This is the company which bought the prestigious Formula One to India and the work on Yamuna Expressway shows that they are second to none in terms of the quality of work delivered.

Among the many bad news, it would be interesting to note that the price to book of this stock is 0.23. This means that it is available at 1/4th of the book value of the stock.

But the investor should also be cautious of this stock considering large amount of loan it has to repay and the real estate sector is in a recession mode(My piece on why you should not buy an appartment).  Moreover, the news of global recessions can tank the reality stocks further.