Aashish Tater's multibagger ideas: Akzo Nobel, Bayer Crop

Akzo Nobel India

If you want a safe return of say 25% year-on-year, you should go and buy this particular stock. We have a target of Rs 1,400 from a one-and-half year perspective. The last time when I pushed this stock, it was hovering around Rs 710 and incidentally we booked at around Rs 960-970. There was a chaos in the market when it was reported that the management of Akzo Noble was going to merge its subsidiaries which would not be beneficial for small shareholders. Now here lies the catch. It will reverse out after looking at management interviews.

The company is sitting on Rs 2,900 crore of market cap with almost adjusted reserves and cash equivalent of close to Rs 1,200 crore, if I include this year’s profit of almost Rs 150-200 crore. So on the conservative side; you have almost 40% in terms of cash equivalent. Taking a call as to when the subsidiaries would be merged and the price adding multiple as the management has already guided would be lesser than the company which is listed. So this will definitely be EPS accretive. Also the PE would shrink after the merger.

The value of the entity would be somewhere around Rs 3,500 crore of market cap and the management again guided that they would go for an open offer for 10% approximately which will work out to be around Rs 300 crore. I think the management will move to 67% after this rework of subsidiaries is actually done. Now when the management owns 67% of Rs 3,500 crore, Rs 1,200 crore is the reserve, they will reduce it by Rs 300 crore by giving small shareholders an exit. Rather than just an open offer, the company can also go for delisting which I am banking my story on.

If I take a call from the adjusted market cap to reserves, it roughly works out to be Rs 2,300 crore. For the next year, the company, after consolidating its subsidiaries would be doing close to Rs 220 crore in terms of net profit which is roughly 20% higher. Again there will be 10% equity buyback. So the growth that the company would see is 23%. From an EPS perspective, not a single company if I adjust for the holdings is available at a market cap to sales of less than 1.7 times and Akzo Noble is one company which is paying annualised equivalent value to its overseas acquisitions of at least 14-15%.

So I think the management can even look at delisting and if the open offer comes very soon then the stock would hover around Rs 1,100 and people would be greedy because one-third of those strong holdings, I don’t think they will tender even at Rs 1,200 onto the stock. So it is a safe stock which should be part of your portfolio from a longer-term perspective.

Bayer CropScience

The basic idea for Bayer CropScience is that whenever there is a story on land bank, people try to actually realise the value. But when the actual story comes into the public, the stock gets battered down. Bayer CropScience is sitting on a market cap of close to Rs 3,200 crore.

The company booked Rs 250 crore last year stating that it sold off its land. We expect Rs 1,300 crore odd realisations which will be booked in the next six months because 18 months was the timeframe and 12 months have almost passed by. So in the next six months, the company will be getting cash of almost Rs 1,000 crore on the conservative side.

If I adjust that and that existing cash equivalent, the market cap roughly works out to be less than Rs 2,000 crore. If I see the next year earnings after its Ankleshwar unit goes into full steam; they would be doing profit of close to Rs 165 crore. Right now we expect almost Rs 140 crore for the full year which is an almost 20% jump. On Rs 165 crore the stock trades at 12 PE multiple. It is not exactly a proxy company but on rallies, the stock trades at much higher valuations.

If I see Bayer as a group and not a single stock, on the holding basis, on annualized equivalent value it trades at less than 13%. Incidentally, Bayer CropScience is one stock which is trading at 17-17.5%. That means there is a 30% chance of price appreciation plus it could be a reward because of the huge land bank it sold.

There could be a special dividend to a tune of almost Rs 50-70 onto the stock. So if I take all this into the picture, we have a target of close to Rs 1,100 for the stock for this fiscal. It is again a safe bet where we feel there could be a very good risk-reward ratio for investors.