Multibaggers of the day: Honeywell Automation, EIH

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Multibaggers of the day: Honeywell Automation, EIH

Aashish Tater, head of research, Fort Share Broking picks Honeywell Automation and EIH as multibagger stock ideas for the day.

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Aashish Tater, head of research, Fort Share Broking picks Honeywell Automation and East India Hotels (EIH) as multibagger stock ideas for the day .

In an interview to CNBC-TV18, Tater said that Honeywell Automation is available at mouth-watering levels and people should have the patience to hold this stock. "Do not buy chunk, buy something but from very long-term perspective, otherwise the stock get delisted, do not tender less than Rs 3,500-3,700," he advised.

Tater seems protected downside and a potential upside for East India Hotels "On a conservative EPS estimation of Rs 3.8, the stock looks reasonably valued at current levels. A stock which looks almost reasonably valued and has a potential upside should be bought in this kind of turmoil conditions," he added.

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

On Honeywell Automation

Honeywell Automation has got unnecessary beating and is available at very attractive valuations. At the current market price of Rs 1,700 odd the company is trading roughly at 16-16.5 times current year earning because they have booked out their previous expenditures in the recent quarter. That is why that particular quarter went very bad. They reported close to Rs 15-16 crore of net profit for this quarter. But for the full year, I am confident the company would come up with Rs 100 crore to Rs 108 crore, which is year on year flat.

From parent's perspective, Honeywell Incorporates, Honeywell International is available and is buying companies at an annualised equivalent value of close to 14%. This particular company from annualised equivalent value with higher growth is available at 18.5-19%. The promoter owns 81% and free float is roughly about Rs 300 crore.

So if I take a call from delisting perspective which I think because of the way it is getting accumulated I super impose it on Atlas Copco's chart, first it had to go down and then once got accumulated it had a sharp rally. So if I see from this angle and if I have to tender this particular stock, I would not be asking less than Rs 3,500 to Rs 4,000 onto the stock if I own this particular stock.

It is peanuts for the company if they given 600-700 crore to the free float holders of the stock. The delisting probability which was less than 48% has suddenly jumped to 53-54% based on our models and calculations. This shows higher accumulation on charts and with stock touching Rs 2,200-2,300 the probability could even define to 60% and eventually the stock could get delisted. So from every angle the stock is available at mouth-watering levels. People should have patience to hold this stock, do no buy chunk, buy something but from very long-term perspective or otherwise the stock get delisted, do not tender less than Rs 3,500-3,700.

On EIH

We have been playing defensive into the midcap sector. Last time when we discussed about various quarters and our price earning multiple test, almost 63 stocks out of 102 stocks that we study have tested its Q1 after breaking down the medium PE. That was the exact reason why we were bearish that market could even go to 4,600 for this fiscal.

There are two reasons that makes me feel that the downside for East India Hotels seems protected, but there is a potential upside. First reason is their asset class; they operate in 23 properties and 6-7 properties will be operational in 2012-13, so that roughly takes property operations at 30. If we take a replacement call on to this kind of business, one cannot find another business with less than Rs 10,000 to Rs 11,000 crore.

Secondly, the business itself is growing. The company has forayed into a interesting business, flight kitchens. We see that there would be much more flights that would be operated in days to come, so flight kitchen would be the market flavour. They have invested around Rs 100 crore into the business and that would definitely reap benefit to them in future.

On a conservative EPS estimation of Rs 3.8, the stock looks reasonably valued at current levels. The technical factors which we feel are, if there would be substantial fall in the price then ITC or Reliance might accumulate stocks further. So, from every angle a stock which looks almost reasonably valued and has a potential upside should be bought in this kind of turmoil conditions.

On Rupee

Meanwhile, Tater shared an interesting study related to the fall seen in rupee. "From October-November 2010 to November 2011, the rupee has been worsening to its low. It has hit life time low recently; during the same period call and put options were allowed. We found that rupee is getting beaten down because of Rs 2.5 over speculation because suppliers of money are holding their dollar by buying protective puts; another Re 1 is because of pure speculation basis. On the conservative side, rupee range would eventually come down Rs 3.5 to Rs 4 if just this call and put option business being stopped," he explained.

Disclosure: I have no personal holding in the stocks discussed but may have recommended them to clients.