In an interview to CNBC-TV18 Ravi Kataria, MD of Investment Imperative shared his top investment bets for 2017.
Below is the transcript of Ravi Kataria's interview to Prashant Nair and Reema Tendulkar on CNBC-TV18.
Prashant: Let us get straight into stocks. You are putting out four ideas and three out of the four ideas are at all-time highs or very close to all-time highs, 10-15 percent away. Apar Industries, Tube Investments of India, NMDC and Technocraft Industries. Let me ask you to pick what you want to talk about first and the reason I am doing that is I want you to talk about the one where you think there is absolute upside, not something in which one should hide in or relatively it will do better, but on an absolute standalone basis, what do you think out of the four that you are recommending will do the best?
A: Apar Industries is our strong pick. The company is commanding three-fourth of its business from power space. It is into transformers, oils, cables and the government is targeting 24/7 power for all and so, it is imperative that there should be a revamp in transmission and distribution (T&D) space. So, they have aligned projects worth Rs 1.5 lakh crore in FY17 and FY18 into this space.
Apar, commanding more than 40 percent of market share in transmission oil as well as more than 20 percent in conductors business, stands out to be a clear beneficiary of those projects.
The company has expanded its bottomline in the first half of 2017 by 70 percent because it is gaining good exports growth in conductors. It has got a good product mix and increased efficiency. So, all these reasons would target higher prices for the company. We are expecting doubling of operating profits in the next two years. So, we have come out with a price target of around Rs 774 for the company.
Reema: NMDC is anyway at its 52-week highs. What could be the potential upside from here and what is the story?
A: NMDC, largest ore producer is operating out of mines in Chhattisgarh and Karnataka. Chinese steel companies are quarrying ore globally for supporting their steel companies and infrastructure space and real estate spending globally. So, the ore prices are expected, as per our calculations, anywhere between USD 55 and USD 70 per tonne. NMDC sells at 20 percent lesser than the global prices or import prices domestically to major players here. It is operating at capacity of almost 90 percent of 36 metric tonnes per annum (mtpa). The company is targeting expansion of its extraction capacity up to 50 mtpa in the next few years. It is also targeting forward integration by setting up a steel plant. So, these factors, we see that the company would see higher operating margins in the upcoming quarters especially in the first half of 2017 when the demand of the global infrastructure spending is high which would drive the steel and ore prices. So, that is why we are recommending revision in the price target, Rs 162 in FY17 and more than Rs 190 in FY18.
Prashant: What about Tube Investments?
A: Tube Investment is into two spaces, manufacturing and financial services (FS). In manufacturing, they are into bicycles, electric scooters, electric engineering, equipments, tubular components.
On the financial services side, they are into non-banking finance company (NBFC), Cholamandalam Investment and Finance Company with more than Rs 34,000 crore in assets under management (AUM) and insurance which is in partnership with the Japanese company to which they sold 40 percent stake last year. We are positive because the company has announced its demerger plan of the financial services and manufacturing divisions. The FS space is commanding lower valuation because of the combination of the manufacturing and it would also open up more avenues for expanding into manufacturing.
On the manufacturing front, they are commanding good international traction in cycles and equipments division. In India, they are second biggest player, they are entering into joint ventures push into the northern Indian market. So considering, these multiple factors, we see the company had at least 25-30 percent upside from here in FY18 itself. The demerger is the main story and the way they are expanding their manufacturing business.
Reema: On Technocraft?
A: Technocraft is into scaffolding systems and engineering services command two-third of their total revenues and then they have textile division fabrics yarn, which commands almost a third of its total revenue.
Scaffolding systems, as the investments in smart cities and infrastructure in India grows, the Technocraft would command more orders in that space. They have also got all approvals from US and Europe for supplying scaffolding systems there. So the company being a preferred supplier from India, we see the order book expanding towards at least double in scaffolding. The fabric space which was not seeing profitability till last year has turned profitable this year. The value added products in the yarn division and revival of fabrics would help in garnering more operating margins in the coming quarters. So all in all combining we are keeping a price target of Rs 462 on this stock.