May 28, 2010, 10.53 AM | Source: CNBC-TV18

Mudar Patherya's top stock picks in volatile markets

In an interview with CNBC-TV18, investment advisor Mudar Patherya, spoke about his reading of the market and his top stock picks.

In an interview with CNBC-TV18, investment advisor Mudar Patherya, spoke about his reading of the markets and his top stock picks.

Below is a verbatim transcript of the interview. Also watch the video.

Q: What’s the story in Orient Ceramics ?

A: It is remarkably under priced and at the same time I would say huge increase in earnings in the last quarter. I have done a bit of calculation and my safety buffer at the time of volatile markets is whether it’s closely priced relative to its EBITDA earnings. I would say that market share for Orient Ceramics is about Rs 60 crores and that my indications show that if everything goes right I think they should report on EBITDA of Rs 50 crores for 2010-2011. That’s really fairly safe at a time when capacities also are going on within the company. So, you are looking at an earnings momentum, which gong is to be pretty positive over the perceivable future.

Q: That sounds strange Rs 60 crore market cap for Rs 50 crore EBITDA—any problems in the past?

A: It happens. The ceramic tiles industry is something that most investors looked at with a fair amount of suspicion—I think that’s over. If you look at the last quarter results of Somani, Kajaria and Orient—it indicates that this sector has actually posted vigorous rebound on the strength of infrastructure growth, strong residential use, more office creations in the country, etc and it’s just that the cycle has caught up and finally they are doing very well.

Q: Why do you like Andhra Pradesh Paper Mills ?

A: This stock is actually selling less than I think the projected EBITDA for 2010-2011. The way I have understood the company is that they had about 1,70,000 odd tonnes capacity. They have added about 67,000 tons in the last one week so effectively it’s a 2,40,000 tonnes per annum company now and they are reporting a margin of nearly of about 32%. Top line for current year I would be surprised if it is not Rs 1000 crores. So if it is a about Rs 1000 crores you are looking at one-third of that going straight into EBITDA. So I am looking at an EBITDA of close to over Rs 300 crores. The market cap is about RS 270-280 crores or maybe maximum Rs 300 crores at the moment.

So it’s quite crazy that when a company or rather a sector turns around you start identifying the biggest bargains. This is the very attractive bargain because the expansion has already gone on stream. They are integrated, and it’s got high margins, and the integration is already reflecting in your high margins. Plus it’s not an Rs 5-10 crore profit play its going to be a significant profit play. Gradually, there will be a huge turn on sentiments for a pretty well waited industry and AP Mills is going to be one of those companies that is going to lead this entire turnaround in paper stocks in the market.

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