Chaman Lal Setia Exports - Time for P/E expansion?

The company is in the business of Basmati rice under the brand name MAHARANI and is in business since 1973.

Highlights:
- Sales have grown from Rs 166 Crores in FY 10-11 to Rs 416 Crores in FY 13-14
- Net Profit in the same period has grown from Rs 6 Crores to Rs 18 Crores
- EPS has grown from 6 to 19 in the same period
- Company has been maintaining a regular dividend payout
- The company has a debt of Rs 61 Crores and reserves of Rs 57 Crores
- ROE has been consistently above 25% since the last 5 years
- Promoter holding stands at 74.39%
- Rice industry is expected to grow at 15% annually for coming years

Valuation:
- Currently trading at 74 levels
- The company is trading at a P/E of 3.5
- The dividend yield is 2.3%
- Price to BV ratio is 0.96
- With sales of Rs 416 Crores, the company is available at a market cap of Rs 72 Crores

Concerns:
- Operating margin and Net Profit margin are at 7% and 4.3% respectively.
-  Sector heavily dependent on monsoons and other climatic conditions.
- Debt has been increasing consistently though it is still within a decent ratio when compared to reserves and of the total debt Rs 17.22 Crores is from 3 non executive directors

The stock has seen some accumulation in the recent weeks and in the current market condition it is fairly undervalued. Being a cyclical, one cannot really assign a high P/E to this stock especially as the margins are pretty low. But assigning a P/E of 6 and EPS of 20 for the current year, one can expect levels of 120 in this stock which is approximately a healthy 60% return in this stock in the coming months. Also, the M-cap to sales ratio is quite low. The stock has seen a rise in EPS and the same has driven the stock price higher for the past few months. Rising EPS paired with a little expansion in P/E could drive the stock price higher in coming times. Invest as per your risk capacity and better to allocate only a small portion of your capital in this counter. This is a bull market investment.