Multibagger ideas: Tater picks Grindwell Norton, Merck

Tater sees Grindwell Norton as a portfolio bet from longer term perspective. He has a target of Rs 350 on Grindwell Norton from next 18 months perspective. “This is a very safe stock. Thus someone who has a time horizon of almost next 18-24 months one can take a longer term view on the stock and stay invested,” he added.

He expects pharma player Merck to give an upside of almost 100% from next two years perspective. “This is a stock where the downside limit is limited to Rs 570 mark. This is a bet that should be bought at current levels from longer term perspective,” he elaborated.

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

Grindwell Norton

Grindwell Norton is a very interesting play. The company has been growing at almost 14% CAGR and the average PE it commands is around 15-16 times. In last one year the company has been consolidating and has now expanded its capacity. For next year we are working with a top line number of approximately Rs 1,100 crore with profit of Rs 125 crore. With that, the market cap should be around Rs 1,800 crore.

Now this is the financial snapshot of a company, which belongs to Saint Gobain France, a 50% plus subsidiary. We feel this company is definitely a portfolio bet from longer term perspective. Given the current scenario when you are trying to look for defensive stocks with good dividend yields, this stock definitely fits the pool.

We have a target of close to Rs 350 on the stock from next 18 months perspective. This is a very safe stock. Any small dip of 5-10% there are players who want to buy the stock. There is huge support around at Rs 240-235 on the stock. Thus someone who has a time horizon of almost next 18-24 months one can take a longer term view on the stock and stay invested.

On Merck

Merck is going to be a very interesting play because of a couple of reasons. The company after 2010 has been consolidating its sales and has not outperformed in terms of growth or top line. But its parent Merck Germany is now looking to seriously increase growth. They will be focusing on growth in China and India.

Even if I take a conservative call on Merck, there are lot of products that needs to be brought in, which will have lot of product demand in India itself and that’s where Merck might find very interesting opportunity from longer term perspective. At current market price of Rs 600 with almost Rs 40-45 of EPS for this year the stock still looks undervalued compared to its foreign players because Pfizer traders at 18-20 times.

So there is at least 20% discounting that the company is deriving. Even on conservative side from next 1 year perspective the company should be available around at Rs 700 odd mark. If someone takes a longer term time frame the stock is a very interesting play.

We feel the stock would again go and test that Rs 1000 mark from next 24 months perspective. The basic rationale that we are putting on front is that Merck Germany has to look for growth opportunity outside its circle and India has to be one of the proxies for its growth prospects. If they bring in 3-4 products that we are talking about then we feel the stock would definitely hog limelight in longer term frame.

This is a stock where the downside limit is limited to Rs 570 mark but a potential upside of almost 100% from next 2 years perspective. This is a bet that should be bought at current levels from longer term perspective.

The problem is that this stock is bit illiquid and people who want to make money on trading basis, this is not a stock for them. This is for someone who can hold the stock from longer time frame with smaller quantity and exit at a very handsome price compared to current market prices.

Disclosure: It is safe to assume that the stocks discussed have been recommended to clients. No personal positions.