Aashish Tater cherry picks Goodyear and Ineos ABS

Tater is bullish on Goodyear, a tyre maker. The company has been a star performer in its sector. At current price if someone has a longer term horizon and wants to find a two-timer from the next 18 months perspective, then they should definitely park a small fund into this particular stock,” he said.

“Ineos ABS announced a mandatory buy-back. This is stock with almost zero downside, decent cash flows and the company looking to delist the stock. With delisting getting announced even at Rs 688 to Rs 900 broad range, one will make decent return of 15-40% from a year’s angle," he added.

Below is the edited transcript of Tater's interview with CNBC-TV18. Also watch the accompanying video.

On Goodyear

We have been bullish on Goodyear. If one looks at the recent developments in the tyre industry, raw materials have almost peaked out and this stock has been a star performer in its sector. Goodyear Tyre, its parent is getting accumulated. If one looks at the shareholding pattern, the FIIs have increased in the last two quarters.

If someone has a longer term horizon and takes a call from the perspective of the parent company, the fair value of this stock has jumped from Rs 550 on conservative side to Rs 613. I feel that Rs 613 should be easily paid by the company because if there is atleast 90% limit which going to come, paying such a decent premium on this particular stock is justifiable from the parent side.

The company is sitting on a land bank in Ballabgarh which is freehold. People who are close to deal feel the valuation could be anywhere between Rs 90-110 crore. The company is sitting on a cash equivalent per share of close to Rs 70. Thirdly, from the perspective of cash flow, even if the company hedges right now at 52 dollar a rupee, the outflow in dollar terms would be much less than what they could have to pay at 45.

If I combine all these three aspects and say that the company comes with an open offer next year, after that 12 months period is over then roughly the valuation would be atleast Rs 613. If we take a call on market cap to sales, Rs1,300 crore odd of sales is what the company does. So if you try to set up a new plant, one will not get this new plant even at Rs 1,000 crore.

Taking all these aspects, the stock has been gradually accumulated by FIIs and DIIs, there is hardly any float left into market. At current price if someone has a longer term horizon and wants to find a two-timer from the next 18 months perspective, then they should definitely park a small fund into this particular stock.

On Ineos ABS

There are two stocks in our category, UTV Software and Ineos ABS. Ineos ABS recently announced a mandatory buyback because its styrolution business getting combined. So if we take a call from the perspective of the business, the company's parent is expected to do a sale of over USD 5 billion.

A decent chunk is going to come to Ineos ABS India and that’s why they made in an open offer Rs 616 and some paisa. So if we take the same call in terms of dollar equivalent, even if they pay Rs 688 for that same floor price of Rs 616, they are not shelling out a single dollar extra. If I take a call from my valuation perspective, I check these particular companies form annualised equivalent value. Initially, I felt that the company could easily pay Rs 800 for the stock, given the big potential of styrolution business.

Now from that similar angle because of the rupee angle, the company on the higher bank could easily pay Rs 900. This is stock with almost zero downside, decent cash flows and the company looking to delist the stock. What else would one want in a market which is jittery and we are not certain about what is going to happen next. So almost no downside into this particular stock with delisting getting announced even at Rs 688 to Rs 900 broad range, one will make decent return of 15-40% from a year’s angle.