Monday, June 04, 2007

Another 20-25% upside may be left in MIC Electronics - moneycontrol.com

MIC Electronics has had a great run. I sense that a lot of people are still reluctant to sell down MIC Electronics because they have got memories of Educomp Solutions and stuff, said CNBC-TV18's, stocks editor, Udayan Mukherjee.

There people said the stock is expensive and just kept on going. People who sold it are really ruing it now. It happened with Tech Mahindra as well. It happened with Everest Kanto to a certain extent.

Some of these niche kind of things you don’t know what the market will value them as finally. And therefore people are a bit hesitant to check out of these counters because they know that they will probably never be able to buy it back. If you sold Educomp two or three days after listing, you would have been regretting it bitterly because the stock has gone to a completely different plane. Of course chalk and cheese, these are different businesses.

Having said that, you just want to look at valuations once the stock has gone up close to Rs 400 now, MIC Electronics. It was a Rs 150 issue, that doesn’t mean anything, that is history. But we are now talking about Rs 800 crore market cap for a business, which would do something close to Rs 200 crore in sales. I think the P/E multiple has just inched above the 25 mark as well now, closer to 30 times current year’s expected earnings.

So, you are getting to that point where for a smaller business you would probably want to just re-look at valuations. But the way it has been going up, who knows whether there is another 20-25% left in this stock before people start thinking of valuations and then start booking profits. For the moment, it is still going strong.

What’s the big difference between 4 times sales for a company and 5 times sales? If you can justify 4 then you can justify 5 as well. So it is a difficult call on where to draw the line for some of these smaller companies with small floating stocks. So, don’t be surprised if MIC goes up some more. But it has now gone to 4 times sales and has reached 25-30 P/E multiple and I think you probably are reaching that zone where somewhere down the line you should slowly start booking some profits because it has gone up quite a bit.

Source : Moneycontrol.com

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