Midcap picks that MF Global is positive on

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Sonal Srivastav , Head Of Research PCG of MF Global likes Electrotherm India because it is a diversified and the entire business is focused towards the core sectors. Regarding Phillips Carbon Black , he said that the company is the sixth largest manufacturer of carbon black right now and we have seen that there is a shift in tyre manufacturing capacities coming in from developed countries to developing countries like India, China and South East Asia.

 

 Excerpts from CNBC-TV18's exclusive interview with Sonal Srivastav:

 

Q: Why do you like Electrotherm India?

 

A:The basic reason we like this stock because it is a diversified and the entire business is focused towards the core sectors. They are leveraging their strength in engineering to do forward integration and venturing into transformers which will subsequently unable them to venture into transmission towers. They are expanding the capacity in special stainless steel and DI pipes.

 

So those are the segments where we seeing growth, there is also one niche area of electric vehicles. Last year they sold such 30,000 vehicles and this year they expect to sell 80,000 vehicles and subsequently it can go to 1.5 lakh vehicles by FY09.

 

Their entire business model is focused towards all the core sector areas, which are growing tremendously, and that is the reason we are betting on the company.

 

They still have second phase of expansion, which is worth Rs 5.8 billion. Some of the term loans have been tied up but 215 billion is to be raised which we expect to come in near future.

 

Q: What is your target?

A: For FY08 we expect an EPS of Rs 52, which will go up to Rs 71 by FY09. In these kind of engineering companies we have seen 9 to 10 times discounting and so we have valued on FY09, a 9.5 times discounting Rs 71, so our target is Rs 658

 

Q: What's the story of Phillips Carbon Black?

 

A: Phillips Carbon Black is the sixth largest manufacturer of carbon black right now and we have seen that there is a shift in tyre manufacturing capacities coming in from developed countries to developing countries like India, China and South East Asia.

 

This company has good potential; they are expanding their capacities from 2.7 to 3.9 lakh tonne apart from that they are also expanding their waste heat based power generation capacity from 28 to 53 mw. So subsequent to that capacity expansion they will have 45-mw surplus sales and apart from that lot of initiatives have been taken by the management, which will lead to margin expansion, renegotiations of price contracts, which will enable them to show good growth in FY08 and subsequently 09 because of capacity expansions.

 

Disclosure:

 

I personally do not have any share holding. But on behalf of our clients there might be because we have coverage on these two stocks.