Expert tips: 3 midcap stocks that make for smart investment

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Expert tips: 3 midcap stocks that make for smart investment

In an interview with CNBC-TV18's Udayan Mukherjee, Kedar Deshpande of Edelweiss Securities, spoke about his midcap ideas for investors.

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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's Udayan Mukherjee, Kedar Deshpande of Edelweiss Securities, spoke about his midcap ideas for investors. He is bullish on Bajaj Holdings , Shiv-Vani Oils and PTC .

Here is a verbatim transcript of Deshpande's comments on CNBC-TV18. Also watch the accompanying video.

Q: Why do you like Bajaj Holdings?

A: There are three broad reasons for Bajaj Holdings. It's a holding company-it's not sum-of-parts valuations and it holds substantial stakes in the sectors, which are internal consumption to the economy like auto and financials. It holds the best among the lot. It holds Bajaj Auto, Bajaj Finserv, Bajaj Electricals and ICICI Bank. So if you just look at the valuation of listed stocks-it is going at around 50% discount and there are other unlisted stocks in its portfolio which are of good quality

We believe that even if you give 50% discounting to the strategic holding which is Bajaj Holding and Bajaj Finserv and give a 20% discount to the non strategic holding like ICICI Bank, the stock should be around Rs 1100-1200 and that is why we recommend Bajaj Holdings. It also gives you 3.5% dividend yield which is a good stock to buy, especially in markets, which are fairly priced today.

Q: Take us through why you like Shiv-Vani Oils? 

A: Shiv-Vani Oil and Gas is a fairly strong play in onshore oil exploration in India, it runs almost ten teams which does seismic survey and another 40 rigs it holds and it has an order book which is almost 2.5 times its last years sales. So there is a good visibility of revenue over the next two-three years and if you look at the valuation terms it is really well priced, it's at around 5 times enterprise value to EV to EBITDA and it's cheaper than the international comparison.

Whereas if you look at many other stocks which are doing well in the economy today they are having a fairly good valuation compared to international peers. This is one of the reasons why we like the stock. It has got a big order book, good visibility of revenue and the valuations are fairly well.

Q: What is fair value or the target price for you?

A: The target price for Shiv-Vani is around Rs 525-550.

Q: You have also put out a buy on Power Trading Corporation (PTC). Why do you think the stock deserves better value?

A: The current valuations of power trading look slightly on the higher side but we believe in the next three-five years, the trading revenues will almost grow five times for PTC. There are three triggers because of which we recommended power trading to our clients. The prime reason is recently Central Electricity Regulatory Commission (CERC) has basically revised the margins and de-tariffed the long-term power purchase agreement margins. So the short-term margins have gone up from 3 paisa to 5 paisa and the long-term margins have been completely abolished. A large part of PTC agreements are long-term agreements of power purchase, so they have no cap on the margins they can make.

Also PTC has evolved from being just a trading in Power Company; it does a complete turnkey power management. So it gives finances to power companies, it gives coal as a facility to its power companies and it buys power from its power companies. It's a very holistic play.

Also its subsidiary PTC Financials there is news that it's going to be listed on the markets and spun off. There is value unlock that is likely to happen in PTC. That is why we believe its going at fair value and it should trade around Rs 180.