Finquest's top midcap picks: Gayatri Projects, Jamna Auto

Sejal Doshi , CEO of Finquest Securities said that there is still value left in the midcaps. He added that once their performance start kicking in, a re-rating will definitely be seen.

Speaking to CNBC-TV18, he said his top midcap picks are Gayatri Projects , Jamna Auto , Satra Properties . Doshi added that they have recommended these stocks to clients with a 12-15 month horizon, hereon.

Excerpts of CNBC-TV18’s exclusive interview with Sejal Doshi:

Q: Why are you recommending the midcaps and the smallcaps at this point in time. Given the kind of pressure these and the broader universe stocks are seeing right now, you think this would be the prudent time to take a position call or wait it out a bit before you can do so?

A: There is certainly some time left. These are the calls which we had recommended to our clients earlier too and we are reiterating our views at this point of time on the stock. We have recommended these stocks with a horizon of 12-15 months from here on, where valuations have come down quite drastically and dissolved the stocks. We feel that from here on, the downside might be limited. Maybe the upsides will take some time so initially, for a short term period, if any client wants to take some position, they may look towards the front line stocks.

But we don’t want to ignore the midcaps completely, there are still values left. And as the performance starts kicking in, we will see a re-rating, but the market certainly has to support it earlier for the stocks to come into the limelight again.

Q: if you can take us through Gayatri Projects, why do you like it and your price target?

A: Its third quarter performance was pretty excellent and in the next two years, we see the unexecuted order book of USD 31billiion getting executed. That will translate into a 50% growth on both, the topline and bottomline. Also, the recent tie up of the company with DLF is also been a big trigger as far as the big BOT projects are concerned. Hence, now the company will get the strength of the balance sheet in terms of bidding for orders worth over Rs 1,000 crore. The company is also planning to unlock the value in its BOT projects, so right now, we are conservatively valuing the BOT projects of around Rs 125.

From the current market prices, if we take out Rs 125 of its BOT valuation, the cash contract business is trading at Rs 325 and we are expecting an EPS of around Rs 65 in 2010. That translates in less than Rs 5 PE. We feel that the valuations are coming at a very comfortable level and from hereon, we are looking at a price of around Rs 725 to Rs 730 in Gayatri Projects.

Q: Jamna Auto price target and Satra Properties, why do you like it?

A: Jamna auto is a CV player, so we are looking at a target of around Rs 100 and on Satra Properties, it’s a main Bombay centric play where 80% of its Rs 4.3 million plant construction is coming into Bombay and so there wont be much pricing pressure. Also, Satra is essentially catering to the premium housing and retail spaces and commercial spaces, so we feel it would be slightly immune to the real estate concerns prevailing in the market. Now with interest rates also expected to come down, it will definitely provide a boost to the real estate stocks per se. Hence, we are expecting a target of around Rs 125 in it.

Q: The one concerned point on these stocks could be the liquidity, because most of them are fairly not liquid stocks. What will be your comment on that?

A: Recently in the market overall, liquidity is come down. But under normal situations, we have been seeing that the stocks are fairly trading, especially in Gayatri and Satra, the volumes have been good. Jamna is one where we expect, because of its post consolidation of its merger, a lot of shares of Jai Parabolic will be coming and that will push up the liquidity.

Liquidity is a phenomenon of price that we’ve been seeing, once the price goes up, we can see liquidity coming back .

Disclaimer

It would be safe to assume that I do not hold any of these stocks. However I may have recommended some of them to my clients.