He expects almost 100 percent from Omkar Speciality, in the next six to eight months, on a conservative side.
He feels Lanco Infra can give 50-60 percent returns in days to come.
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Below is the edited transcript of his interview on CNBC-TV18.
Q: Why have you picked Omkar Speciality Chemicals?
A: Omkar Speciality Chemicals could be a very interesting bet in days to come. If you see the recent announcement of its capacity expansion in the Urdhva Chemicals unit, a 100 percent subsidiary of the company, we feel this stock with almost 2.5 times its current capacity in days to come will report a profit after tax (PAT) of approximately Rs 40 crore on a market cap of Rs 250 crore odd.
The products that this particular company offers are into monopolistic state. Not a single company, even on global front, is able to cater to all that products. One interesting aspect is that the demand for this product are rising because Molybdenum, Selenium and Iodine derivatives on the specialised product front for API products have been increasing quite significantly. Even with this capacity ramp up, we feel they will not be able to suffice the demand of the products.
With every year passing by, the learning curve experience of the stock is going to give them a very good return in terms of the bottom-line. Last year reported profit was around Rs 16-17 crore, capacity of 2,800 tonne will be added to existing 1,820 metric tonne. That means almost 2.5 times the sales is expected for next fiscal. It means the profitability of Rs 40-42 crore on a conservative side.
We are not assigning a very aggressive target right now. But we feel the stock should go and test Rs 180-200 from next six to eight months perspective, once the financials of Urdhva Chemicals starts. These kind of companies, even on global front for Molybdenum, Selenium, Iodine derivatives, are available sometime at a PE multiple of 12-13 times during good periods. That means from around Rs 260-520 crore of market cap, on conservative side, can easily be taken on.
Even Lasa, another subsidiary of this particular company, is going to revamp its capacity. That will be an add-on benefit to the company. They have been making a very strategic intent of actually delivering the entire expansion through a small debt proportion and larger proportion through internal accruals. Thus, if we see the downside on this particular stock, it is capped. On upside, we can expect almost 100 percent from next six to eight months, on a conservative side. We feel this is a portfolio bet from medium to long-term perspective.
Q: What about Lanco Infra?
A: Lanco Infratech, we feel a ‘W’, on technical basis, has been formed. If we align the news flows, we feel this is one stock that can give you 50-60 percent returns in days to come. If I talk about the technical aspect of this company, the stock made a ‘W’ at around Rs 12.62 on weighted average basis. So, roughly a downside of 10 percent is what we expect.
On risk reward front, we feel the stock would go and stabilise around at Rs 22-23 on a conservative side. There are three things that we expected and that has now started being talked about. First of all, the Australian Perdaman ruling, which has gone in favour of Lanco Infratech and many of the analysts have actually written off this particular asset from the company’s balance sheet, but now this particular asset will again be valued by the analysts. So, the game changer will be the value game on this particular front.
The second interesting aspect is that the company, on the non-strategic asset side, would monetize a larger part of their holdings and they will be focusing on reducing their debt. Apart from that, the 2015 target is of 15,000 plus megawatt. We feel at current levels the stock is available very attractively priced.
On a conservative side, we have a target of Rs 22 from next one year perspective. If things move the way we are actually forecasting for this particular stock, we feel a Rs 4 EPS would be delivered by the company on FY15-16 basis. So, even if I assign a PE multiple of eight-nine times, a target of Rs 35-36 cannot be ruled out from two years perspective. So, again a stock where we feel a lot of upside is there. On risk-reward front, there is a likely possibility that the stock would be very rewarding for long-term shareholders.
Disclosure: I have no holdings in the stocks discussed.