Harendra Kumar, Head-Research at ICICI Direct gives his view on mid and small cap stocks like Bartronics, Parsvnath, Garware Offshore and Birla Power.
Excerpts from CNBC-TV18's exclusive interview with Harendra Kumar:
Q: Key among your picks is Bartronics . Give us an idea of what kind of business opportunity and share price escalation one can expect?
A: It’s a very small company with aggressive plans, showing lot of good growth YoY and has got its plans laid out for the next four years to maintain this growth, that is very optimistic. The management is aggressively building up the second line as well, plus the opportunities - there is the smart cards, RFID business.
The way retail opportunity is going and the way regulations are moving in terms of smart cards and electronic election cards, it’s in an area, which is seeing a lot of opportunity. It has got a first move advantage and valuations are not so expensive. So that makes us optimistic. We are conservative at the moment, but we expect the target price to move consistently tracking earnings YoY.
Q: Tell us what is the advantage that you see in Parsvnath , because real estate is fairly congested, it has a pan-India presence but it is fairly concentrated in the NCR?
A: Three things. One is not only NCR, it is present across the country. Number two is it is going to have a steady cash flow in terms of DMRC projects. We went very aggressive in taking a conservative valuation in terms of the land bank that they have. That is the first check that we did, so that we don’t go overboard in terms of valuations.
So in all the real estate plays that we have, we have been very conservative as compared to others. Price is retraced significantly at this point of time and overhang on real estate in interest rate will continue for some more time, but as this goes away, we are getting one of the better stocks at a very low price.
Q: You also like Garware Offshore . The offshore business has been seeing a lot of activity, a lot of excitement, primarily on margins going up. Are you betting on the same aspect? If so, what is the call and the target on this one?
A: Absolutely. If you look at the overall exploration space, I think it going to see a lot of action. We had something on Mercator at 38 and I think it has given fantastic returns. That is also entering the offshore space.
Garware Offshore, again not in the core rigs business, but in the core ancillary business supporting this opportunity. And new capacity additions in terms of the vessels they are going to acquire, and where the opportunity is, in terms of margins is also higher. Valuations are reasonable. They have the first right of refusal among the entire Indian players.
We are going to see a lot of action in this space. Not only Garware, even Shiv Vani and some of the other players such as Alphageo who are in this space. I think opportunities are long-term and we have just explored a little bit in the country in terms of exploration policy. We are going to see a good sectoral play here, and Garware happens to be one at this point of time, because we have coverage. That is the reason why.
Q: What about Birla Power , because it is a small cap company moving very well in today’s session? Gen-set business, what is the investment call on this one and are there any risks attached because in terms of bottomline, the company is working on low margins?
A: Absolutely. When we initiated coverage, it was around at Rs 27, and we thought it was an attractive business with a great brand name going through a restructuring and available at Rs 60 crore. So, that was one call.
Second is, the management has clearly shown it wants to take this business forward in terms of the current product proposition. I think over the longer-term, they want to be in the batteries business as well as probably some part of the power play opportunity that is available in the country. The core competencies are there and the stories will unfold. We had a target of Rs 55, which is around the current market price. But I am sure developments would say that there are some more upsides out there.
But all in all, the space, the kind of power crunch that we are seeing, will continue to grow and with the brand name and a good product mix, I think there is some more value left.
Disclosures: All of the shares were actually recommended. So, client, analysts and personal positions could be there.
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