Tater's top picks: Cash on Ineos ABS, Pipavav Defence

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Tater's top picks: Cash on Ineos ABS, Pipavav Defence

Aashish Tater, head of research of Fort Share Broking joins CNBC-TV18 to take his pick of multibagger stocks. He sees Ineos ABS and Pipavav Defence having the potential to fetch better returns ahead.

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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

Aashish Tater, head of research of Fort Share Broking joins CNBC-TV18 to take his pick of multibagger stocks. He sees Ineos ABS and Pipavav Defence having the potential to fetch better returns ahead.

"Ineos ABS has been our pick since 2010. The company announced that delisting offer has been extended for Rs 605-606. I don't think this is the fair valuation for the stock. Analysts are disappointed with the company's current quarter performance but if one looks at operational performance, the company would grow at 15-16% CAGR over next three years."

"Defense sector has many things in the offing and had found wealth creators. It offers tremendous opportunities from demand perspective. Pipavav Defense has an edge over Larsen and Toubro . We seen lot of potential in this stock in the times to come," he added.

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

On Ineos ABS

Ineos ABS has been a pick right from 2010. Ineos ABS' parent - Ineos ABS Jersey and BASF are working on Styrolution which is an opportunity close to USD 6.5 billion globally. We expect Ineos ABS to get business from.

The company announced that delisting offer has been extended for Rs 605-606. I don't think this is the fair valuation for the stock. The annualized equivalent value that we have been playing for stocks like  Alfa Laval , Elantas Beck , etc the fair value roughly works out at close to Rs 800.

Other fundamentalists have been disappointed with their current quarterly results. But I feel that there was higher provisioning of around Rs 4 crore for contingency and almost Rs 8 crore of forex loss because of weakening rupee. That has resulted in subdued bottom-line performance. We are confident that if one removes this and looks at operational performance, the company would grow at 15-16% CAGR over next three years.

The Styrolution business coming from its parents is going to be a very big opportunity. This stock has got limited downside and still a potential upside. We would not tender our position if we hold anything less than Rs 850 into it. The value - Rs 800-850 should be easily paid by the parent. From rupee weakening perspective, it would cost them less at Rs 800 compared to what it would have costed them at Rs 750 almost a year back.

On Pipavav Defence

We have been bullish on defence as a sector rather than only Pipavav Defence. Any sector which has been open for private participation has found wealth creators. Defence as a sector is one uniquely poised sector which has got tremendous offing in days to come.

As far as percentage of expenditure to GDP growth and land bank area and percentage of expenditure is concerned, on both parameters India needs to workout in terms of increasing its expenditure. Other countries roughly allocate budget close to 3-3.5% or even 2.5% on conservative side and that is for developed nations. So, there is a lot of opportunity that is going to come.

To take a reference of P-75I (Project 75 India) and others, India requires roughly 18 submarines, 7 stealth submarines. This is during a phase when India lost three submarines into a non war area. This shows that there is a tremendous opportunity in terms of requirements. From defence perspective our neighboring countries have been spending a lot so we need to ramp up.

We feel there will be a higher allocation and the opportunity could be close to USD 50 billion for project defences ahead. For Pipavav, there has to be three phased growth strategy for the sector. Firstly, mapping your own potential and building infrastructure. Then tieing up with technologically advanced companies and thirdly building up on indigenous technology.

I am taking a rough call that within next five years we will not be able to come up with some great indigenous technology. But if I map this potential, Pipavav has an edge over L&T and over ABG Shipyard because they have got tie up with world renowned companies like SAP, Babcock, DCNS and Sembcorp. Going forward I see a lot of potential.

Another thing that has came into limelight is the offsetting policy. If we expect USD 50 billion of order outflow, 30% needs to be processed by Indian companies. That comes to lmost Rs 60,000 crore over next three to four years with a comfortable position in terms of order book visibility.

From a valuation perspective, Pipavav being a rich man's friend would definitely get benefited from these offsetting orders. This is one industry where entry barriers gets heightened with time because of escalation cost and infrastructure. There are only limited players globally who can provide this kind of technology.

Disclosure: I have vested interest at individual family level in Pipavav Defence. Also we have recommended the stock to clients aggressively.