PN Vijay's view: Allahabad Bank, Hexaware, HCL Infosystems

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Allahabad Bank BSE | NSE 01/06/12 Are Mutual Funds betting on Allahabad Bank? Other Stocks in this news Hexaware Technologies | Infosys | Wipro | HCL Infosystems | Redington (India) | CMC |

In an interview with CNBC-TV18, portfolio manager PN Vijay, spoke about his multi-bagger ideas.

PN Vijay is bullish on Allahabad Bank as this mid sized PSU bank posted quite impressive numbers in the last quarter. He has set the price target for the stock at Rs 250.

His second pick was Hexaware , which had a tremendous last quarter. The company has good geographical spread they are also well placed in terms of valuations. Vijay believes that Hexaware is a good stock for retail investors. It is a good proven story in the midcap IT space.

Citing his views on HCL Infosystems which got embroiled in some Common Wealth Games (CWG) controversy he said, "One has to be very careful about it. Redington and CMC which are almost in the similar space are probably better at this point in time. Right now things are not too good for HCL Systems."

On Allahabad Bank

Allahabad Bank is a Kolkata based midsized PSU bank. What's interesting about Allahabad Bank is that in the last quarter their results were quite impressive. In the sense that most of the banks as you know were under pressure because of high cost of deposits but, in their case the CASA is excellent. It is one of the highest CASA's in the industry because of the rural penetration that this bank has.

Additionally, they did a massive mobilization of savings bank account which means that savings bank accounts increased by 15-16%. Because of this the net interest margins last quarter were as high as 3.5% so slightly higher than Axis Bank which makes it one of the most profitable on a gross basis among the PSU banks.

Their focus has been on retail and SME and the slippages have been pretty nominal compared to other PSU's. So among the PSU it seems to be a good kettle of fish. Apart from that in terms of valuations - it's trading at about 1.15 price to book in the current year which is pretty nice and less that one or one for the FY13.

In price earnings it's about 6.5 which is about 1.5% less than the median for PSU banks. So, all in all it is a good bet, dividend yield is pretty attractive. The growth at every level is good. They have done some provisioning for pensioning and gratuity like almost all the PSU's but its more a provisioning - it's not an outflow and that has to be done as per regulations.

I am not too concerned about that. Once the interest rate scenario becomes a bit more salubrious, Allahabad would really catch investor attention. It's also some sort of a favourite among retail investors. We have a price target of about Rs 250 on that.

Also Read: Bullish investors eye 5200-5400 levels to deploy funds says RBS

On Hexaware

Right now we are looking for good picks in the midcap space where because of the negativism generally among retail investors - they have tended to fall off. The market ignores strong quarter on quarter or year on year performance. Because we do believe at some point retail participation will come and this would be the first to recover.

Hexaware sort of fits that because we tend to put the entire midcap IT in one space. It's not commodity really. You can put midcap banks into one space, put midcap IT and midcap pharma into one space and be too simplistic.

Hexaware had a tremendous last quarter. Their profitability just shot up at the EBITDA level, I think at the net profit level. What's interesting is their business model. Hexaware is into enterprise business solutions. Their geographical spread is very good.

They have almost 25-30% on Europe where it would appear at least in countries like Germany and France - the growth is pretty robust compared to the US. We are happy about the geography of it, the hedging policy is very good.

In terms of valuation, the guys reported EPS of about 6.5 or so which makes it slightly over 10 which you will agree is about 40% in the PE of an Infosys or a Wipro . So, all in all - a good stock for retail investors, a good proven story in the midcap IT space.

On HCL Infosystems

One has to be very careful about it. Redington and CMC which are almost in the similar space are probably better at this point in time. The thing about HCL Infosystems is - it's a pretty hardware type of driven company. Though they have been trying to go into solutions but some of the other sister companies concentrate more on solutions.

So it's really a hardware company. They try to put out integrated systems but they have not gone too far on that. So I would say that on the business level also there are certain questions about the business model and the EBITDA margins.

Coming to the CWG, the Shunglu Committee came out with a very damming report, almost as damming as the CAG Report which set in motion lot of other things in the 2G.

So the CBI is picking on contract after contract and going deeper. I am in no position, I am not Prashant Bhushan to talk about the legality of it. But, right now things are not too good for HCL Systems.