Equirus Securities' top midcap picks for your portfolio

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Equirus Securities' top midcap picks for your portfolio

In an interview with CNBC-TV18, Bhavin Shah, CEO of Equirus Securities spoke about his expectations from the upcoming earnings season and his stock bets.

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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

In an interview with CNBC-TV18, Bhavin Shah, CEO of Equirus Securities spoke about his expectations from the upcoming earnings season and his stock bets.

Below is a verbatim transcript of the interview. Also watch the video.

Q: Before we talk about your midcaps, how high do you rate the chances of the market breaking out of such a long standing range?

A: I am not focused on technicals of the markets but looking at individual companies and the growth opportunities, if you ask me in six-nine months, will the market be 10% higher from here?-I would say, "Yes". So I definitely feel that there is fair bit of growth in a large number of companies to support higher market in six-nine months from now.

Q: We are doing it as we step into earnings season. First for IT, a space that you have tracked, what do you expect this earnings season to be like?

A: It is going to be one where companies will talk positively about the demand indicators. However, if there will be a little bit of resistance to providing any upward boost to guidance given challenges in Europe and also given the volatility they experience in currencies and so on. On the whole, I don't expect any upward surprises coming through the earning season.

Q: What is the story in Adhunik Metaliks ? Why do you like it?

A: Adhunik Metaliks is the company that is backward integrating into iron ore and also over time captive power and the risk or the issue with a lot of companies trying to backward integrate into mining is that there is a lot of uncertainty associated with getting all the blocks of a puzzle in place for starting the mining. However, Adhunik is already in production from mining from last year and basically looking at increasing their production over next couple of years and as a result of that we see significant growth in earnings.

In fact, we expect earnings to double in two years by FY12 and go up more than three times by FY13 from FY10 levels. It is huge earning growth, there is a lot of negative sentiment around metal stocks in the market with respect to steel prices and so on and that has kept some of these midcap stocks in this space somewhat under pressure. But we think that is an opportunity especially for a company that is going to have revenues coming from iron ore which will lead to margin expansion. For example, we expect Adhunik's EBITDA margins to expand from 27% last year to almost 40% by FY13.

There is a very strong margin expansion, good revenue growth. So even if you want to discount some of these assumptions, I think stock still has got plenty of upside. Our March '11 target is Rs 160 which is based on about five years of growth and also based on relatively low P/E multiple trading at currently on 7 times FY11.