Harit Shah of Angel Broking likes Bartronics on which he expects a 20-25% upside over the next year. Specially with the retail industry growing at such a fast pace, Bartronics is pretty well positioned to grow in that space. Sasken, he believes, also sees 25-30% upside possible over the next year.

Tanla Solutions' current valuations being reasonable, Shah has a price target of about Rs 784 in 12 months on it.

Excerpts from CNBC-TV18's exclusive interview with Harit Shah:

Q: Your first pick Bartronics, what is the price target and why is it a buy?

A: We are working on our numbers specifically on the stock, but I think probably you can expect 20-25% upside over the next year as far as stock price movements are concerned.

The company runs a pretty good job, they are into two major segments - one is the AIDC Solution segment and the other one is Smart Card. In fact they are the only Smart Card manufacturers right now so there is tremendous scope for growth in that segment and they have got the only smart card manufacturing facility in the country. Specifically from telecom and later on from government, these are the two major sectors where this segment can grow. Of course on the AIDC segment, RFID business, the end-to-end solution, is one segment where we have pretty strong growth. Specially with the retail industry growing at such a fast pace, we think Bartronics is pretty well positioned to grow in that space. So I think this is the main reason why we like this company.

Q: What’s your call on Sasken. The stock has had a fairytale run, it fell from Rs 550 to all the way back Rs 80, became a smallcap stock and from there has doubled to about Rs 160. How do valuations stack up for this stock and how much more do you give this?

A: I don’t know if we can call it a fairytale run from Rs 550 to Rs 160. But there was a specific reason behind that, obviously the company has not performed as per expectations, rupee appreciation has hit the stock quite badly, that’s the main reason but right now the valuations are about seven times FY10 earnings, which is quite reasonable. The company’s business model is quite volatile and to some extent, they are dependent on some products wherein they have got their Internet Protocol (IP) loaded on to mobile phones which are then shipped.

So eventually the royalty revenues depend on the amount of shipments, which is unpredictable and that’s a negative factor about the company. So there is risk and of course the fact that they are focused only on the telecom space is also another risk, but last quarter the product business has started to breakeven and going ahead also this seems to be a pretty strong way for the company to maintain margins. So right now it’s a high risk stock, but probably the downside likely to be low. So we think 25-30% upside is possible over the next year or year and half timeframe.

Q: What is the price objective on Tanla Solutions?

A: It is a very good, strong scalable business model based on the telecom aggregations we are seeing particularly in the developed markets and also they are going to grow in India. So right now valuations are quite reasonable, we have a price target of about Rs 784 for 12 months perspective right now on the stock.

Disclosure:

I do not hold Sasken & Bartronics India, but hold Tanla Solutions & have recommended them to the clients.