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Nov 24, 2010, 05.32 PM IST
In an exclusive interview with CNBC-TV18 Bhavin Shah, CEO, Equirus Securities talks about his top stock picks.
Below is a verbatim transcript of the interview. Also watch the accompanying video.
Q: Let us start with Greaves Cotton, why do you like that story, it is in the news today with a stock split?
A: Greaves Cotton is a dominant player in the single-cylinder, three-wheeler engine markets especially for non- Bajaj Auto vehicles. They have got some long-term contracts with some of the customers such as Piaggio for three-wheeler and Tata for a sub-one tonne four-wheeler and company has lot of strengths in this area while the segment itself should register between 15% till high teens kind of growth rates, Greaves Cotton should certainly benefit from that. Given their market position and likely earnings growth, we like this stock, post split basis our target is Rs 120.
Q: On what basis have you worked out that price target in terms of valuations?
A: It is basically trading at around 15 times FY11, our FY12 EPS is Rs 7.5 so roughly similar multiple essentially coming through and the growth coming through should sustain that company, earns very good return on equity, so on those measures it also sounds pretty good.
Q: Let us move to infrastructure where you have picked Supreme Infrastructure, take us through why you like that relative to its peers?
A: Supreme Infrastructure has consistently delivered good performance in terms of quarterly numbers. If you look at it, their margins have come through pretty well, thanks to their backward integration of key raw materials. In the recent weeks, the company announced several atleast two new BoT projects that company will participate through a joint venture. That obviously adds to the value of the company. The stock isn’t done a whole lot but we think there is a substantial upside coming through from the value of those BoT projects as well as the core business and if you look at sum-of-part kind of valuation, just put 6 times FY12 EPS and at the value of the BoT projects, you get something like Rs 417 for September ’11 price target.
Q: There is excitement around the Manganese Ore listing and some of these stocks which have a leg in Manganese have also gone up, but you still like Adhunik Metaliks?
A: Yes, Adhunik is already seeing almost 50% growth in their manganese ore production this year and based on the plans, they could become India’s second largest manganese ore producer in FY12. So there is that sort of theme along with the MOIL IPO that could play here but more importantly their core should see very strong profit growth and stock is trading near the low end of its trading range and so both of these factors should eventually play out in the valuation and that is the reason why we like Adhunik Metaliks.
Q: You like the MOIL India IPO as well in the price band of Rs 340-375, you think it looks like a good buy?
A: Yes, our analyst has done a bit of work on the value of the company and MOIL is obviously the India’s largest manganese ore producer and the quality of their mines are also very high and there is also growth in the business, they continue to find a new reserves and we think that basically the stock should trade at some sort of premium to the fair value of its reserves and based on that we put a value around for September 11 again around 470. So even at the high end of that IPO pricing range, there is decent upside if somebody wants to hold the stock for a year or so and that is why we recommend subscribing to the IPO.
Q: You have got a target price of Rs 175 on Gujarat Alkalies which is a good 30-35% higher than where the stock is currently on what is that target predicated?
A: Gujarat Alkalies continues to trade at a significant discount to its book value something like 0.6 times book. The industry is basically near the bottom of its cycle, Gujarat Alkalies is the lowest cost producer in India with a key advantage of captive power as well as excess to raw material especially salt and we think that with the higher demand from the user industries, the product prices should strengthen driving the stock and even at Rs 175, we are not arguing for any kind of a rich valuation, we are still talking about close to book value kind of valuations. So that is why we think that – that is achievable as the pricing improvement materializes in their output.
Q: Any disclosures to make on the five stocks you spoke about?
A: We might take positions in any of these stocks on individual basis.
Tags: Bhavin Shah, Bajaj Auto, Greaves Cotton, Supreme Infrastructure, Adhunik, Gujarat Alkalies, MOIL, Piaggio
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