Ashish Tater of Fort Share Broking picks two stocks that are his hot picks to buy on dips. Ingersoll Rand and Gujarat Fluorchemicals , he says are two stocks investors should have in the portfolio from a 15-18 months perspective. “Looking at fundamental value of the companies, they should be bought at any dip,” he says.
He further adds, “We expect the Ingersoll Rand stock to easily test Rs 800 mark from next 15 months perspective. We have a target of 12-18 months of Rs 600 and from three years perspective for Gujarat Fluorchemicals stock.”
Below is a verbatim transcript of Ashish Tater picks exclusively on CNBC-TV18. Also watch the accompanying video.
On Ingersoll Rand
It is a subsidiary of Ingersoll Rand US. There are market rumours that the company is looking for delisting its shares but the company has actually denied this proposal. Looking at fundamental value of the company, it should be bought at any dip which is similar kind of stories like Elantas Beck that we recommended last year. The company has got tremendous potential and definite candidate, in terms of delisting from a two years perspective. Hence, taking a fundamental call, the company has three segments which they operate into — industrial segment along with solutions for security and climate solutions. The company has recently announced that they want to expand their capacity with a new plant that is coming in South, either in Karnataka, or Tamil Nadu. It would clock sales of over Rs 700 crore and the company operates at a margin of 14% to 15% on operational level, so they would generate EBITDA level of Rs 105 crore.
The market-cap of the company is Rs 1,500 crore. They huge cash and cash equivalents along with loans and advances of close to Rs 630 crore for last year. This year they will add another Rs 65 crore to Rs 70 crore, in terms of bottom-line, so that translates into almost 46% of the current market-cap. It is a debt free company and if I look into the expansion plan from the parent side, they recently acquired in 2008-2009 Trane, which was paid an annualized capital yield of just 7.8%. The company would do an EPS of close to Rs 42 to Rs 43 two years down the line. The next year the company would clock close to Rs 32 to Rs 33 and a promoter company like Ingersoll should trade at a PE of close to 20-25 times.
If any delisting news comes in these two years or two and half years, the PE can expand to almost 35 times. So, we expect that the stock can easily test Rs 800 mark from next 15 months perspective. Any positive news from Ingersoll to delist its subsidiary, can take the stock four figures from next 15-18 months perspective. Thus we are extremely bullish on the stock and it is a buy on dip candidate from our side.
On Gujarat Fluorchemicals
Gujarat Fluorochemicals business is into refrigerants and gasses and they also have a subsidiary which operates into wind power generation. The company has recently announced that in a phased manner, they would increase their capacity in the caustic soda as well as polytetrafluoroethylene (PTFE) and chloromethane segment. The company would generate close to Rs 460 crore to Rs 500 crore of profit for next fiscal. The company is going to post 40% jump in bottom-line and is a buy on dip candidate.
We are comfortable in entering this particular stock at around Rs 320-325 mark for target of close to Rs 600. However, the larger story would play out in terms of carbon credit the company is going to get because across the board, the company is planning to expand its capacity by almost 2.5 times in the next three years to three and half years. Therefore, we expect that in three years the company would even test close to Rs 1000 mark because the company would do an EPS of Rs 70, which is our estimate for FY13.
In a monopolistic business like Gujarat Fluorochem, with largest capacity in couple of its segment, with PTFE of close to 5500 which they are planning to expand to 12000 plus, I think the company is one candidate that should be a part of one’s portfolio from a very longer-term perspective. We have a target of 12-18 months of Rs 600 and from three years perspective. The stock is a definite candidate for Rs 1000 ruled by a bonus because this company is sitting on cash reserves which is equivalent to its secured and unsecured loan. Hence, you are getting this company virtually debt free on a market cap of Rs 4000 crore with tremendous potential going forward, so this is a definite buy from our side.