Smallcap or midcap? Check out 2 bets from both worlds

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Smallcap or midcap? Check out 2 bets from both worlds

In an exclusive interview to CNBC-TV18, Mudar Patherya, Investment Advisor, says that in this volatile environment, his top bets are Mangalore Chemicals and Fertilizers and Pitti Laminations.

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Excerpts from Midcap Radar 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 exclusive interview to CNBC-TV18, Mudar Patherya, investment advisor, says that in this volatile environment, his top bets are Mangalore Chemicals and Fertilizers and Pitti Laminations.

Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video.

Q: What is the first pick from your research basket?

A: The first company is Mangalore Chemicals and Fertilizers . I think its remarkable company. It's a profit making company with a market cap of Rs 350 crore. My understanding is that they should do EBITDA of Rs 170-175 crore for the current year. They have already done about Rs 44 crore of EBITDA in the Q1. Now normally I have seen that Q2 and Q3 are the really good ones. So even if they do better than Rs 44 crore in the Q2 or the Q3, and then see a small decline in the last quarter, I still feel it's not very unreasonable to expect an EBITDA of 170-175 crore. On a market cap of nearly Rs 350 crore, it's excellent.

Secondly, fertilizers are not necessarily going out of fashion. This company has a good brand in south India, so I think that there is a reasonable expectation that there is going to be a good growth factor there. Also, I think that they should benefit as a result of the Nutrient Based Subsidy (NBS) policy. So if that happens, this company is on a good wicket.

Lastly, there is growth potential for the company. So even if you buy it at an extremely low valuation. It will only become better because of the growth. So I would say in today's volatile environment, today's insecure environment, Mangalore Chemicals is a reasonable insurance.

Q: What is your second pick?

A: The second stock that I have in mind is a company called Pitti Laminations . In today's volatile environment, every stock picker says go for size because size means security. But I have gone completely contrarian on this count and preferred to select Pitti Laminations, which is a very small cap company. On today's market capitalization, Pitti Laminations would be close to Rs 36-37 crore of market cap and my understanding is that the current financial year the company should post an EBITDA of more than Rs 50 crore.

How have I got access to this information? If someone just reads the annual report for Pitti Laminations for 2010-11, the company very surprisingly has made a forward projection. They have actually mentioned what they expect to earn in the current year and the next financial year. If you take these numbers as gospel truth, then you will easily arrive at the conclusion that the company is significantly underpriced.

According to me, the company expects to earn a profit after tax (PAT) of somewhere around Rs 19 crore for current year and a pre tax profit of somewhere around Rs 28 crore. They have actually given a projection that in the next financial year, that is 2011-12, they expect to earn Rs 26 crore post tax and Rs 38 crore of pre tax.