Value picks among midcaps

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » RELATED NEWS Why invest in these stocks? Find out 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 Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Larsen and Toubro | Salzer Electronics | Super Spinning Mills | TTK Prestige |

S Ranganathan, Head of Research at LKP Shares gives some of his midcap picks - Super Spinning Mills, TTK Prestige and Salzer Electronics.

In his view, considering the fact that midcaps are beaten down the earth, these are some of the stocks where he believes, there is value for the table.

Excerpts from CNBC - TV18's exclusive interview with S Ranganathan:

Q: Super Spinning Mills is one of the stocks that you like. What is the rationale behind picking it and the price target on this?

A: Basically Super Spinning Mills is a textile, company which is present across the value chain in the entire spectrum of the chain - from yarn to readymade garments.

We believe that just like some of its illustrious peers like Mahavir Spinning, this company scores well on all parameters whether it is Ebitda margins, dividend yield and so on.

Although some companies like Mahavir Spinning, which are twice the size of Super Spinning, are adding value and supplies to almost all the customers both in the domestic as well export markets, we believe that due to the kind of growth prospects that the company enjoys, it has the ability to post 50% earnings growth over the next couple of years. Obviously, at these kind of valuations, it is really trading at substantial discount to some of its peer group companies within that space.

Q: What sort of a target do you have on this?

A: We have a price target of about Rs 38 on the stock. It trades at about Rs 20; so on historical valuation, it trades at about four to five times. In our view, this is a stock where one should be looking at accumulating at dips with this kind of price target over the next one year.

Q: What makes you so bullish on TTK Prestige because the results suggest they took a very big hit on the operating front, at least in Q3 results?

A: TTK Prestige is one company where QoQ results may not be truly indicative of the kind of growth that we look at in the business per se because this company is a real case of turnaround. Considering that, the addressable market for this company is upwards of 3000 crore, they are just about 300 crore roughly at this point of time. They have a competitive edge over any kind of peer group by being the first mover advantage in this particular space by running the branded outlets.

We believe that this is truly a company, which is innovative, which is reflective of the fact that close to 75% of the revenues come from products, which have been launched in the last couple of years. They are doing all the right things in the market place. So judging by one quarter results, we wouldn't be disappointed.

We are fairly optimistic about 40% growth over the next two years. So the valuations are pretty attractive. So considering the fact that midcaps are beaten down the earth, these are some of the stocks where we believe there is value for the table.

Q: What is it that you like about Salzer Electronics because I was just taking a look at their Q3 numbers, it's a small cap company and at this point of time the excitement really comes in from the domestic revenues which contributes about 70% of their total revenue pie?

A: Right. Yes, as you rightly said, this is a small cap company with revenues of about Rs 60 crore. Again addressing a market size upwards of Rs 1000 crore, catering to the electrical equipment with a supply to almost all the big names to the domestic market, what is interesting is that the exports are also picking up.

Exports now stand at about 30% of their total revenues and their tie-up with Crompton Greaves puts them in state, going forward. They also have a similar tie-up with L&T on the domestic front. So if you actually look at it, we are quite excited at the fact that this is a scalable business model, where most of the customers to which they cater to, are seeing substantial volume intake.

In our opinion, this company has the ability to grow its revenues from Rs 60 crore to Rs 120 crore in the next two years. So we are seeing lot of topline growth coming in the next two years for this company and so does the bottomline, so valuations of course are extremely compelling.

Q: Put a price target to Salzer from Rs 96?

A: If you consider the way midcaps are behaving at this point of time, for the next one year, we have a price target of about Rs 130 on this stock.

Q: Any disclosures?

A: We and our clients would have a beneficial interest in all the stocks that we have discussed.