Interesting picks amongst the midcaps

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » RELATED NEWS West Coast Paper has target of Rs 650-700 Agarwal bullish on Bajaj Auto 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 Autoline Ind BSE | NSE 30/05/12 Are Mutual Funds betting on Autoline Ind? Other Stocks in this news Bajaj Holdings & Investment | Blue Bird (India) | ESS DEE Aluminium | Global Vectra Helicorp | Hanung Toys and Textiles | ICICI Bank | Lumax Auto Technologies | Maharashtra Scooters | Rama Newsprint and Papers | West Coast Paper Mills | XL Energy |

Rajesh Agarwal of CD Equisearch comments on his three mid-cap stock picks.

Agarwal says that he finds the stock of Maharashtra Scooters very undervalued as the company is basically functioning as a holding company and holds 33.87 lakh shares of Bajaj Auto. Agarwal feels that Bajaj Auto has a lot of scope and they are highly bullish on it.

Agarwal also likes West Coast Paper, which belongs to the Bangur Group that has planned an expansion of Rs 1100 crore. He believes the company will do very well post-expansion.

The third pick is Hanung Toys, which has moved up after the quarterly numbers. He believes that if one holds the stock for at least six months to one year, a decent return can be obtained on the stock.

Excerpts from CNBC-TV18's exclusive interview with Rajesh Agarwal:

Q: Start with Maharashtra Scooters . Apparently you worked the numbers and looking at the investments of Maharashtra Scooters, particularly in Bajaj Auto , you find it a very undervalued stock?

A: I find the stock very undervalued because the company is basically functioning as a holding company and it holds shares of Bajaj Group of companies, 33.87 lakh shares of Bajaj Auto. This company was formed by WMDC(Western Maharashtra Development Corporation) and Bajaj Auto as a joint venture with 27% and 24% respectively.

In the meantime, WMDC wanted to disinvest its stake and they had differences in the price, the case went to arbitration and now it is hanging in the court. Coming to the business part right now it is functioning only as an investment arm of the company and holds investments in Bajaj group companies.

The value of those investments taken together and the book value comes to around Rs 950 and the stock is trading at Rs 370 which is 51% discount to its intrinsic value. What I feel is Bajaj Auto has a lot of scope and we are highly bullish on Bajaj Auto and if Bajaj Auto moves up this also is going to move up because the value will be created.

Apart from this, in the last one year or so, a lot of institutions have shown interest in Maharashtra Scooters shares. What I feel is Bajaj Auto moves up this also moves up and this has got lot of cushion because if the price of Bajaj Auto corrects one would have a cushion if one holds Maharashtra Scooter.

Q: With your sum of parts and book value for this one, what kind of price do you think Maharashtra Scooter can support?

A: The price works in tandem with price of Bajaj Auto and what I feel the correct view would be 40-50% discount to the intrinsic value whereas it is discounting at 67% of its intrinsic value, so there is some more cushion left in the stock.

Q: West Coast Paper is the other stock that you like, tell us why?

A: This company belongs to the Bangur group and they have planned an expansion of Rs 1100 crore which ICICI bank and IFCI has been mandated for arranging Rs 750 crore. Other than that, it will be funded through internal accruals and equity part. What I feel going forward the company is going to do extremely well after the expansion and maybe Rs 1000 crore of turnover.

Current annualized EPS is around Rs 75-Rs 80 and trading at around Rs 400, which makes the stock highly attractive because the PE comes to 5. Apart from this, the company holds stock of Rama Newsprint , the market value of which is Rs 86 crore. All this makes the stock highly attractive and we predict a target of Rs 650-Rs 700 in a period of one year.

Q What about Hanung Toys , you like that story as well but it has moved up quite a bit the price has it not?

A: It has moved up after the quarterly numbers, which were good enough,a 78% jump in bottomline. The domestic market is filled up with unorganized sector in soft toys mainly coming from China and once the retail boom comes in, there will be demand for quality products which Hanung Toys is giving more stress and quality.

The current EPS is around Rs 12-Rs 13 and next year EPS we predict around Rs 18 making the stock cheap looking at the valuation side and the future prospects of the retail industry as such. If one holds this stock for atleast 6 months- 1 year one can get a good decent return in this stock.

Q. Any disclosures to make?

A: Maharashtra Scooter and West Coast Paper, our company holds substantial stake both in trading and investment positions and as far as Hanung Toys is concerned I have my personal position in that.

Q: Which of these recent listings do you track between Autoline , XL Telecom , Blue Bird or maybe even Lumax Auto Tech and Global Vectra ?

A: To be very frank, we don't track any of these rather we are more interested in ESS DEE Aluminium which was a listing some time back but yes it is also a recent listing, one of them is Hanung Toys. These two companies we are tracking very keenly. ESS DEE Aluminium, we are very bullish on the prospects of their expansion plans and all.

Q: What is the call on the markets? What have you advised clients to do now?

A: We are highly bullish on the market, we think the pre-Budget rally is going to happen and apart from that also with GDP growing and corporate numbers coming in so good, we don't feel there is any fear except for inflation which is a disturbing factor but lets hope something comes up in the Budget and makes a good trigger for that.