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Oct 14, 2011, 01.07 PM IST
Deven Choksey, managing director of KR Choksey Shares and Securities suggested stocks from the banking and capital goods space for two-three years time frame.
Talking to CNBC-TV18 in an interview, Choksey mentioned that IndusInd Bank has a nice quality of performance with attractive valuations. He pointed out that the stock is not expensive and can give double the returns in next three years.
From the capital goods segment, Choksey’s likes the sub-Rs 1000 crore marketcap company, Elecon Engineering . He explained that this company has been witnessing continuous growth even in the uncertain market scenario. "It is a quality midcap company available at 9 times earning ratio," he added. He also indicated that one could find an appreciation between 50-75% over current market price in two years' time.
Here is Choksey's analysis on his picks.
On IndusInd Bank
IndusInd Bank is good from an investment perspective for next 12-24 months. There are several merits in this particular stock are current levels.
Against their last three years of CAGR growth of around 25% in the asset size, which is standing at Rs 45,000 crore as of last year, the stock would grow at 20% CAGR in next three years, which would translate to around Rs 67,000 crore worth of asset size.
Against 97% CAGR profit growth, which stood last year at around Rs 520-580 crore, could get doubled in next three years to around Rs 950 to 1,000 crore at a compounded rate of around 96.27%. This bank offers a lot of upside potential.
We would find a good amount of mix in the income portfolio. As much as 65% of the income comes from interest side and 35% of the income comes from the fee side. With higher focus on secured loans and less of the unsecured, there is a nice quality asset performance.
Valuation-wise, the stock is also attractively traded right now with around 2 times price to book value for FY13 and a little above 2.2 times or 2.3 times for FY12.
The stock is not as expensive with a current positioning on the dividend yield. It is available at around 1.3 to 1.4% dividend yield. It is quite an exciting opportunity for an investor. The investor can double the size of the investment in next three years’ time.
On Elecon Engineering
Elecon Engineering looks good from capital good segment. It is a sub-Rs 1,000 crore marketcap company. In this challenging time, the growth rate has been at moderate level and next year, it promises to be on an accelerated pace. This year, the company could record a topline of Rs 1,350 crore and EBITDA of Rs 200 crore.
Going forward, it could go up to Rs 1,600 crore next year and EBITDA of around Rs 230-240 crore. The growth in the company has been continuing in this challenging environment.
The company is likely to get larger amount of order inflow, particularly into the gear division and material handling division. In the first half of the financial year, they have received a smart order inflow, which is expected to accelerate in the second half of the financial year. This order would give them a visibility of around one-and-a-half to two years from now as far as the business is concerned.
In quality midcap companies, where the valuations are attractive in the current market price, this company is available at around 9 times price to earning ratio. On a dividend yield parameters, an investor would like to put across dividend yield as he/she would have an advantage of earning at least 2.4 to 2.5% on dividend yields from this company.
We like this company from an investment perspective. In two years’ time, one could find an appreciation between 50-75% over current market price.
Disclosure: It is safe to assume that the stocks discussed have been recommended to clients.
Tags: Deven Choksey, KR Choksey Shares and Securities, capital goods space, banking, IndusInd Bank, Elecon Engineering
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