Multibagger ideas: Tater picks Heidelberg & Cosmos Film

Aashish Tater, head of research at Fort Share Broking picks Heidelberg Cement and Cosmo Films as multibagger ideas.

Below is the edited transcript of Tater's interview with CNBC-TV18. Also watch the accompanying video. On Heidelberg Cement Heidelberg has been picked because of two reasons; one is the parentage and two because the capacity is going to get doubled very soon. They are already on the verge of completing their expansion which will lead to 6 million tonne capacity from current 3.08 million tonne but the same is not justified by the price. If I adjust for the debt on the unsecured loan part, the conservative price estimate roughly works out to be Rs 38. While working with the regression models, the weighted average price we got was Rs 28. So from Rs 28 to Rs 38 if there is a shift of Rs 10 that means a stock should go and test that Rs 42-44 mark, which roughly values the company at approximately USD 52-53 replacement cost value (RCV) basis, which is relatively cheap compared to what the companies have been trading. We ignored the major players and took a call on south based companies; there also the valuations are roughly around that USD 48-55 mark. So even if I take a conservative call of USD 45 RCV, it roughly works out to be at least Rs 38-40. So here is the call where you have a foreign parentage, the company is going to trade at the lower value that any cement company derives on 6 metric tonne capacity. I think this is one stock, which is a safe bet in the cement sector from next one year perspective. It could give a 30% return even in this challenging scenario for someone who wants to be in cement stocks. This is the safest bet in the sector in the smallcap and the midcap space. On Cosmo Films When we took a call on the asbestos sheet market, we felt that the excess capacity of the products had been absorbed and the stock gave tremendous returns of almost 60-70% within six months. Similar kind of issues have now been developed into the film sector where we feel Cosmo is the safest bet because if you see the marketcap to sales ratio, the company is expected to do Rs 1,000 crore of sales. They are sitting on a marketcap of approximately Rs 175 crore and the company is going to pay you a dividend of Rs 5 on Rs 90. So on conservative basis; on either side one could still make 6-6.5% from the next three-four months perspective. We have taken two calls; one the raw material prices are expected to go down, thanks to crude material and two the output price has already stabilized, which will mean that the company would be able to operate at least at 5% net profit margin. So for next year, the company would be doing somewhere around Rs 45-50 crore in terms of net profit, which on a marketcap of Rs 175 is substantially lucrative. Taking a scenario, where we try to forecast on what can happen stock specific or sector specific. Asbestos sheet did the same, the excess capacity in the system got absorbed because of leasing out and similar kind of issues have been already coming up in the poly film sector. So once this issue actually stabilizes, the P/E would get extended to almost 40-30%, which will give the stock a target of Rs 125 plus that Rs 5 dividend. That means from Rs 90 to Rs 130 just on a P/E rerating without even taking a call on new capacities. I think this is one stock where one can make at least 30-40% from next six months to eight months perspective. We have been taking positive call once the stock started building a base around that Rs 85-90 levels. Taking the regression models, the stock made a double bottom at Rs 82 after testing regression lows of Rs 70.9 and then Rs 82 and then Rs 92 and again Rs 82. That means if someone is taking a trading call from next two months perspective, his stop would be around to Rs 82 on closing basis and by that time he will be getting a dividend of Rs 5. So on risk reward front, trading basis, as well as from fundamental aspect, this is one stock where gains can be made but losses would be very minimal. Disclosure: Safe to assume the stocks discussed have been recommended to clients. No personal position.