Multibagger ideas: PN Vijay's one risky and one safe pick

Eros International, he says, is a very risky stock. "But in the next two years, Eros could be a multibagger," he adds.

Wyeth, Vijay says, is a very safe pick. "I would give a target of about Rs 1,100 or so in the next 12-15 months," he asserts.

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Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: You have picked a media stock, Eros International. What is the story there?

A: Eros International is a very interesting media stock. Media is a very broad-term; you have print, television etc. Eros works in the film space. It is a long standing company, more than 30 years, with a large international footprint also. It co-produces and distributes films. One should say this is a riskier part. The whole film industry is risky, one should admit. So, within the film industry, it is equally risky.

They have an excellent library of more than 1,200 films. When you have library, you get an annuity of different types of incomes, television distribution, internet distribution and many other distributions.

In the last quarter, Eros has done very well. It has posted a sales increase of about 37% and an EBITDA increase of close to 40%. It has got a price earnings multiplier of about 12-13, which is pretty good for a media stock. So, I am quite comfortable about media.

The other thing about Eros is that 'Houseful2' was a blockbuster. When you look at the media stock, you have to understand that what the pipeline is going forward. 'Houseful2' apparently was a great success. 'Vicky Donor', which was a small budget film, was also a great success. So, FY13 looks excellent for Eros.

Media stocks are very risky stocks. So, one should understand that when one is buying a media stock, one is buying a risky counter. But in the next two years, Eros could be a multibagger.

Q: What about Wyeth?

A: Wyeth has got a fantastic history. It started in India way back in 1940s as Lederle then there was this merger with Cyanamid. I was also involved in that some more than 35 years ago. Then it followed Geoffrey Manners, the world’s leading analgesic producer. And all that became finally Wyeth Lab. In 2009, it got swallowed by the giant Pfizer, which has a 51% stake. So, today Wyeth is a Pfizer company, a part of the Pfizer umbrella globally.

Wyeth has got some very strong products in the oral contraceptives segment. In increasing urbanisation and consciousness about family, oral contraceptives are very fast growing part of the pharmaceutical formulations markets. Barrier to entry is very high because government doesn’t allow easily manufacturing and marketing of oral contraceptives. They are in the vaccination space. They are the leaders in the vaccine space, Prevnar is champion there. So, they have got some very strong brands.

The valuation is pretty okay. It about 12 times earnings, which is pretty good these days. There is one risk to the stock. They have got a big case going with the government on the DPCO, Rs 76 crore or so. They are partly provided for that in their P&L. But if the case goes against them and the company ofcourse believes it will not go against them that could hit them.

The trigger is that there is a certain integration of Pfizer’s activities with Wyeth globally and in India. The margins in Wyeth have improved tremendously because a lot of the distribution, the sales network has moved to the Pfizer platform. So, we are getting some strong EBITDA margins.

It is a very safe pick, nothing to worry about in an anxiety driven market. I would give a target of about Rs 1,100 or so in the next 12-15 months.