Sharekhan recommends 3 stocks for your portfolio

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Sharekhan recommends 3 stocks for your portfolio

In an interview with CNBC-TV18, Hemang Jani of Sharekhan finds that volatility is on the cards due to uncertainty stemming from the Eurozone area. He also gives a detailed analysis on his houses three stock bets - Selan Exploration, SPIC and Arshiya International.

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Excerpts from Markets Midday 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

In an interview with CNBC-TV18, Hemang Jani of Sharekhan finds that volatility is on the cards due to uncertainty stemming from the Eurozone area. He also gives a detailed analysis on his houses three stock bets - Selan Exploration , SPIC and Arshiya International .

Below is a verbatim transcript of his interview. For complete details watch the accompanying video.

Q: Is it a pure play technical rebound that we are seeing in our market or do you think the Nifty perhaps will be putting in a base somewhere around 4,800?

A: We think that it's going to be extremely volatile because there is a lot of uncertainty emanating from Europe where things are not very clear. We think the market might pullback to about 5,100 levels. In the current scenario, we don't think there is a case for a substantial recovery in our market.

Q: As a house, you have recommended Selan Exploration. Why do you like that stock?

A: This company has got the rights to develop oil fields in the state of Gujarat. We think there is going to be a very strong volume-led growth over the next two-three years. From current production of about 2-2.25 lakh barrels, the management expects this to go up to about 5-7 lakh barrels over the next two-three years.

We have also seen a strong realization improvement in the last two quarterly numbers. When you look at the valuations on most of the parameters whether on a price to earnings (PE) or on an EV to EBITDA or even on the basis of the probable reserves that the company has, the stock is quoting at a substantial discount to companies like ONGC or Cairn.

Though it is a smaller capacity, the valuation gap is extremely high. It has a very high operating profit margin and a very low debt. We think this stock can give an upside up to Rs 500 over the next one year. Current price is about Rs 305.

Q: Why is SPIC attractive? What's the target price that you would put on it?

A: SPIC is a south based fertilizer company. Recently, it went through a major debt restructuring and hived off its non-core businesses. The promoters have infused about Rs 400 crore in the last six months. We are enthused by the fact that the overall operating performance has become extremely well in the last two quarters.

We are expecting an EPS of about Rs 9 for the current year. The overall fertilizer space has become far more attractive after the government's steps of NBS. There are indications that even in urea you might see some positive steps being taken. That would really be great for a company like SPIC.

Q: Arshiya International is already on a tear today. What's the target price you would set on Arshiya?

A: We think the stock can move up to about Rs 220. This is one of the few integrated companies, which is into logistics and FTWZ with rail business in place. It has already invested heavily into FTWZ and the rail business. Its Panvel unit is already operational. because of which there is going to be a very strong growth in the topline and bottomline.

It is available at about 7.5 times FY12 and about 5 times FY13 earnings. Looking at the kind of business and the kind of management, execution capabilities, this stock can move up to about Rs 220.

Q: It was Rs 350 a year ago or Rs 340 a year ago. The stock is a third of what it was a year ago. Is this general infrastructure bashing that pushed Arshiya down?

A: Absolutely. We have seen the entire space getting butchered over the last 12 months. Particularly, companies which had high debt, where there was a severe beating and similarly, is a case like Arshiya. With its Panvel unit operational, the company is operationally doing well with topline growth being more than 35%. At current valuations it's looking far more attractive.

Disclosure: It will be safe to presume that I personally and my company have interest in the stocks that I have talked about.