Fort Share view: 3 stocks that could turn multibaggers

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Aashish Tater, Head of Research, Fort Share Broking is bullish on UP Hotels and Span Diagnostics. On UP Hotels, he has an initial price target of Rs 320, then Rs 380 and Rs 500. He says the promoter holding of 88% and the recent change in norms will give a boost to the stock.

With Span Diagnostics also planning to expand its capacity utilisation, Tater is bullish on the company, and has a price target of Rs 100 per share.

In an interview with CNBC-TV18, Tater outlined the reasons for his stock picks.

Below is a verbatim transcript. Also watch the accompanying video.

Q: UP Hotels , what is the story here?

A: UP Hotels is better known as Hotel Clarks. This company owns four hotels in the Uttar Pradesh, Madhya Pradesh and Jaipur region and these are all five star hotels. Hotel Amer and another hotel that is based in Jaipur and Hotel Khajuraho has total landbank of close to Rs 700 crore. The marketcap is Rs 140 crore. The company has been a consistent dividend payer for the last five-six years and has been doing a consistent EPS between Rs 16 to Rs 20 range.

The interesting thing in this stock is the promoter holds 88% in the stock. With the recent change in norms of 75% promoter holding, we are banking on this particular stock that will definitely get an open offer or there will be a placement from the promoter's side at very high level because the net asset value of these stocks are way high.

A company that is available on a marketcap of just Rs 140 crore having a replacement cost of over Rs 700 crore and is not having a single rupee debt into the company and is having additional investment of close to Rs 10-12 crore into the bank, we feel that this stock is a clear-cut multibagger and has been recommended to our clients from a very longer-term perspective, one year or so with a modest target of Rs 380.

In fact we feel by March 2011 the promoters can come out with an open offer where we have pegged our target at close to Rs 320. But we feel there is tremendous potential in the stock because the company has been not rated by the market as of now. Hotel Clarks is one of the premium group available in Agra.

Hotel Siraj itself is more than the current marketcap of the company which is based in Agra. The 18 acre land that the company owns in Khajuraho and the Jaipur land, the value of the Jaipur land is mind boggling. At current levels the stock is not even trading at a premium valuation to its replacement cost which it should deserve because looking at its peer set, Hotel Leela and others, they are not making that modest EPS in terms of valuation, PE multiple.

But this company has been a consistent performer in terms of bottomline and has been making profit of close to Rs 20 per share. It's a very small equity of 5 crore and promoter owns 88%. With the new norms we feel the stock is a definite rerating candidate and should be held from a longer-term perspective, from a multibagger perspective on the stock.

Q: You also like a stock called Span Diagnostics . Take us through why you like it and what is the kind of upside you see for this?

A: Span Diagnostics is a Rs 55 crore odd marketcap company. But what interests me in this company is their recent deal with SRL for Piramal's Diagnostic business. The company was bought for Rs 600 crore and has sales of Rs 230 crore odd.

Span Diagnostics is into clinical research and we feel that the company's business model has got great potential going forward and they have been doing exceptionally well both in terms of topline and bottomline growth. The company has recently also announced a bonus and has been a consistent dividend payer for the last so many years.

The interesting thing in this particular space is that the company promoters has promised close to Rs 100 crore of sales for this year and Rs 118 crore is what we project for next year. At one point of time the company would be trading at least one time to marketcap to sales ratio. That means a clear 100% upside from current levels.

However because it's a low profile stock in a smallcap category, we feel the stock should have some discount from a target perspective. So we have pegged the target of close to Rs 100. But this stock could be a multibagger given the strong ownership from the promoter side. The promoter has increased their stake by 2.5% in the last quarter itself. So we feel this is a clear multibagger.

Q: Take us through the logic of Assam Company ?

A: Assam Company is one space which has been doing the rounds from 2007 onwards because of its rich oil and gas availability in the Assam and Nagaland region. But what is interesting for us is the inclusion of the top management with Pradip Tusnial. We feel that this particular personnel has turned around the tea estate story for Khaitans and we feel that there could be a good restructuring prospect into this particular stock itself.

We feel that this company has assets of close to Rs 1,800 crore on NAV basis and that too when I discount this on a return on equity of close to 26% which is very high because this company has small sale that owns 18 tea plantation across India and also own four oil and gas bases.

What is interesting is the GSPC tie-up for a 750-1000 mw SEZ project that the company has recently got a nod for. If I see the peer valuation of the SEZ project, we feel this stock is terribly undervalued. But what is interesting is how the company is going to fund this particular project because the company is already sitting on a debt of Rs 513 crore. That's why we feel that this stock can be a good buy because we feel at Rs 22-21 the downside is 8-10%.

But there could be a potential upside up to 100% from a two years' perspective. If I see the entire oil and gas reserves they have a proven record in the Arakan and Amguri area based in Assam which is close to 60 million barrels of oil and close to 290 billion cubic feet (Bcf) of gas.

Along with that the company is in the exploratory area right now for the AAON-7. We feel there could be a major restructuring exercise into the stock and the net asset value at a very high return on equity, discounts at Rs 40 from a two years' perspective. We have pegged the Diwali target given this was our Diwali pick at a very conservative target of Rs 30 by next Diwali which is still an upside of 40-45% from current levels.

Given the recent inclusion of a person who has got restructuring done and has a prove track record for the management we feel this could be a clear multibagger if someone holds it for two-three years perspective for a decent 25% upside year on year returns on the stock.

Disclosure:

I am not supposed to own any of the stocks recommended here. But yes, these were the Diwali picks from Fort to all our clients. Thus we feel in these stocks I have vested interest from our side. Maybe these stocks have also been bought in the portfolio of the firm, and so we might have also vested interest in that sense.