Multibagger ideas: Piramal Healthcare, Hind Rectifiers

He said, one can accumulate Piramal Healthcare on dips. He has a minimum target of Rs 600 in the next 12-18 months for this stock.

Rajen sees Hind Rectifiers having the potential to be a multibagger in the next three years. "We are expecting about Rs 150-160 crore of top-line and an EPS of about Rs 10 next year," he added.

Below is the edited transcript of Shah's interview with CNBC-TV18. Also watch the accompanying video.

On Piramal Healthcare

Angel has always fancied companies which have done buybacks and more so when the buyback is a mega one. Last year, Piramal bought back almost 4.1 crore shares at about Rs 600. That buyback was of almost Rs 2,500 crore. When a promoter is pumping in such kind of money to buyback its own share and at a significant premium to the market, gives immense confidence. That is one of the reasons why we like Piramal.

Secondly, recently it picked stake in Vodafone. About seven months back, they picked up 5.5% stake at about Rs 2,700 crore or Rs 2,800 crore and now they have picked up another 5.5% at about Rs 3,100 crore. Net-net currently they own about 11% stake in Vodafone and the total investment is about Rs 5,800 crore. Bharti has 24 crore subscribers across 19 countries.

If we take out Bharti’s African business and digital TV subscribers and compare it like to like with Vodafone, the Indian business of Bharti would be around Rs 1 lakh crore. Vodafone has 10% less subscribers than Bharti, so we believe that Vodafone would be valued at Rs 90,000 crore, when it will list 18 months from now.

So, Rs 90,000 crore means Piramal’s 11% stake would be around Rs 9,500 crore. This Rs 5,800 crore would be around Rs 9,000 crore in the next 18 months and that is almost 30-40% kind of upside. Post-tax, the company will make about Rs 2,000 crore in 24 month, that is Rs 1,000 crore annually.

This will be significant considering that the market cap of the company is about Rs 7,300 crore. The company is also into pharma business and is getting very aggressive into real estate business via Indiareit. Piramal Healthcare finance business is likely to boost up earnings in the coming years.

So, on all parameters the stock certainly looks interesting at about Rs 420 levels. We have been accumulating the stock since levels of Rs 340-350 and at every dip and we are buyers into this company. We have a minimum target of Rs 600 in the next 12-18 months for this stock.

On Hind Rectifier

This is a very low profile, 50 year old Bombay-based company. It is into semiconductors, rectifiers, inverters and transformers. It is a small company. The turnover this year would be about Rs 130 crore. The interesting thing is that about 50% of its turnover comes from railways and 50% comes from infra and various industries. Infra has slowed down significantly, and that should have impacted the company’s business. But in the first half the turnover has gone up by 30% and profits have gone up by about 70%, though on a small base. The company has four plants. One is in Bombay at Bhandup, one is at Nasik and two at Dehradun.

The Dehradun plant has lot of tax benefits when production takes place there. Dehradun has started operations pretty well and the turnover is growing at about 50-60% over there. The Bombay plant is situated on 4.5 acres of land and Mahindra Lifespace has recently built-up a project just opposite to this factory. The price they are charging is Rs 10,000 a square feet. Excluding construction and other government expenses, Hind Rectifiers should be able to make about Rs 22 crore per acre from this project.

They own about 4.5 acres, so the value of the land works out about Rs 90 crore, whereas the market cap itself is about Rs 75 crore.  Since Dehradun plant is operationally doing well, Mumbai operations maybe shifted to this in the next two years. I do expect this unlocking of land to happen in the next 24 months. We are expecting about Rs 150-160 crore of top-line and an EPS of about Rs 10 next year. Even if we give Rs 12-13 kind of PE multiple, on fundamental itself it is about Rs 120-130 stock, plus the land value. The stock has all the potentials to be a multibagger in the next three years of so.

Disclosure: We own these stocks in our PMS.