Replacement price for McLeod Russel stands around 400: Motilal Oswal Financial Services

In an interview with ET Now, Raamdeo Agrawal, Joint MD, Motilal Oswal Financial Services, gives his views on McLeod Russel.

ET Now: You have liked McLeod Russel, and the stock has been showing traction in the last couple of trading sessions. Yet, there exists a lot of headroom in the near-term. What is the earnings trajectory you expect from this stock?

Raamdeo Agrawal: This is a cyclical stock, and the company is the world’s biggest tea company. So it is a commodity company that is facing shortage due to the failure of crop and monsoon. In Africa, tea prices have gone up 3.30-3.40 cents to closer to around $4. So in dollar terms too, prices are going up for quality tea. And here there is a crop shortfall and demand is very strong from domestic users.

The second half will bring some interesting times. These are peak production periods when you do not see the stock outs, but during the end of the season (November to January), domestic production will end and then the true balance of demand and supply will be visible.

ET Now: Does that mean you will not be surprised if McLeod Russel in the next 3-6 months goes to 400?

Raamdeo Agrawal: That is what my hope was when I bought that. 400 is a replacement price of the company and in bad times, you will get half the replacement price. In good times, you tend to overshoot, but the replacement price is about Rs 400.