Multibaggers: PN Vijay picks 1 midcap and 1 largecap stock

According to him, Heidelberg Cement is a very attractive midcap buy. “The share is trading around Rs 41 or so. I expect it to go up to about Rs 60 in the next 12-15 months,” he adds.

NMDC, he says, can go up to about Rs 250 in the next 12-15 months.

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Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy.

Q: Why have you picked Heidelberg Cement?

A: Heidelberg is a midcap cement stock. It’s owned by one of the world’s five largest cement entities Heidelberg of Europe. Sometime ago, it was bought by Heidelberg from the Birlas, it used to be called Mysore Cement and then the name was changed.

There are few positives for Heidelberg Cement. First, cement stocks have been doing very well. Today it’s such a sentiment driven market that one needs to respect the sentiment of the market. Secondly, on the operational front also cement companies are seeing good activity. Their pricing power continues to be good. Their demand scenario is fairly good.

The key thing is that Heidelberg is doubling its capacity during the course of this financial year. This capacity is in Madhya Pradesh and Uttar Pradesh, which service the fairly lucrative high priced Central India regions. The impact of that doubling capacity is ofcourse the volume growth and a cost reduction of something like Rs 200 per tonne. Already the EV to EBITDA for the company has gone up from about 270-500. So, I think that’s a pretty good EV to EBITDA by any standards.

On the valuations, the stock is trading at about 6.5 times 2013 earnings. That is pretty attractive, given the EPS growth that one is expecting. The share is trading around Rs 41 or so. I expect it to go up to about Rs 60 in the next 12-15 months.

The cement companies have so far been able to raise their prices. If for some reason the prices flatten out then the EBITDA margins would be a bit under pressure. This is the risk the entire industry faces. But apart from that, I think it’s a very attractive midcap buy.