Check out: Ashish Tater's 2 multibagger winners

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Century Enka BSE | NSE 30/05/12 Are Mutual Funds betting on Century Enka? Other Stocks in this news Tata Metaliks | Tata Steel |

Aashish Tater, Head of Research at Fort Share Broking, in an interview on CNBC-TV18 talks about his two hot picks for trade - Century Enka and Tata Metaliks .

Below is a verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. For complete details watch the accompanying videos.

Q: Why have you chosen Century Enka?

A: Century Enka is a switch call from our side. We have advised our clients to book profits in Sumeet Industries and enter into Century Enka. Sumeet Industries has seen a steep run-up in the prices. Hence, we feel Century Enka is a better play in terms of valuation though they are not proxy in the same segment.

If I take a fundamental call on the company, they are one of the leading manufacturers in the nylon segment with their Nylon Tyre Cord Fabrics (NTCF) capacity of 22,000 tonne mtpa. They are also into polymerization. They have announced Rs 350 crore odd margin expansion plan which will expand their sales by almost 14-15% going forward.

The company is doing a net profit margin of close to 7.5-8% year on year. I feel even on a conservative side, they will do close to 7% odd margin. On an expected sales of Rs 1,500 crore odd levels with comfortable debt levels, the bottomline would result in close to Rs 100 crore odd.

The current year expectation is close to Rs 75-80 crore odd mark which means YoY 25% jump in the bottomline. We feel the stock can easily get rerated and the stock would get a better dividend payout going forward. It will shift from BK Birla Group to Kumar Mangalam Birla and we would even get better dividends. This is a good entry bet at current levels.

The company has three plants - one in Pune, other in Maharashtra and the third one is in Gujarat. In these particular areas, they can easily go for brownfield expansion which they have announced. With strong cash flows on operating side, they will not need to dilute their earnings or even reach debt from current levels. There could be an easy upside in terms of bottomline and EPS for the shareholders. Thus, we are comfortable entering into a stock for a target of close to Rs 290-300 mark from an eight-nine month perspective.

Which big institutions hold Century Enka?

Q: The other stock that you like is Tata Metaliks. Take us through the story there?

A: If someone goes through the results of Tata Metaliks, it has posted a dismal performance and it was expected because of the raw material pressure that the company is facing. If I take a fundamental call, I feel iron ore prices would bottom out and the average realisation would be at least 12-13% down from last year. That would benefit the company's bottomline.

If I take the call on the management's interview day before yesterday, they pointed out a similar situation that they will again be able to do 8-8.5% net profit margin going forward but it would be early to take a call on this basis. If I take a fundamental call in terms of balance sheet, the company has investments into Tata Metaliks Kubota, a subsidiary of the company which has a pact with Kubota, Japan.

They own 51% into ductile iron pipe. The problem with this particular subsidiary is they are unable to get that BIS certification ISI mark for their product of DI pipes. However, we feel going forward a group from Tata would definitely get this particular certification and then they will be able to sell their products in the domestic region.

Right now, they have an installed capacity of 110,000 mtpa. They are looking to scale it up to 200,000 mtpa but they have not been able to utilise even 5,000 metric tonne per annum because of this certification issue. The last time when they applied for this certification, there were minor technical errors out there for which they didn't get it. But we expect that this issue would be sorted out by them soon and with this particular announcement itself the stock would give a 25-30% return.

If I take a valuation arbitrage call on the subsidiary itself and compare it with one of the largest manufacturers in this segment, Electrosteel Castings, they have an installed capacity of 375,000 tonne. They are now sitting on an enterprise value of close to Rs 1,700 crore odd. They are right now sitting on a capacity of 110,000 tonne per annum that means the value of the subsidiary itself would be much more than their current marketcap.

With softening of iron ore prices there would be positives for the company. So here is a company with limited downside in terms of valuation and potential upside. There is another piece of news that is making rounds among brokerage circles - which is they might be delisted and could be merged with Tata Steel because they have an MoU with Karnataka government for Haveri district.

This could be another positive trigger for the stock going forward. We have a very modest target of close to 200, if these two developments happen on company side. If the ISI certification itself happens, the stock would see 25-30% jump in no time. I personally feel for a company like Tata Metaliks, they will get the certification either in the next two-three quarters which will rerate the stock significantly from current levels.

Check Out: Tata Steel's stake in Tata Metaliks

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