Flames in ash: Hemang Jani picks four investment bets

As volatility in global and local equities continues to remain rampant, thanks to growing economic uncertainty, investors are either dumping their holdings or looking out for super-safe bets. In an interview with CNBC-TV, Hemang Jani of Sharekhan picked Divis Labs, Tata Global Beverages, United Phosphorous and Bharat Electrical Limited (BEL) as the top investment ideas in the current landscape.

Below is the verbatim transcript of his interview with Latha Venkatesh and Anuj Singhal. Also watch the accompanying video. Q: You have an excessive price target on Divis Labs, what is this call based on? Is this grounded on valuation or because it is a cash rich company?
A: It is a niche contract research and manufacturing company, which has seen strong growth in the topline numbers from the second half of last year. Also, the company enjoys an operating profit margin of 40%. Once its Visakhapatnam plant gets operational next year, the company is likely to register strong growth. Further, this company has zero debt company and the net cash addition would stand around Rs 306 crore next year.
The firm is also focusing on providing good growth opportunity in nutraceutical segment. In the current environment, thanks to surging inflation and interest rates and global uncertainties, investors are looking out for companies with stronger visibility, lower debt and higher operating profit margin. Thus, this counter fits the bill. Q: Why have you picked Tata Global Beverages? Is it that agricultural commodities anyways are going to trade stronger?
A: Tata Global Beverages is moving from a pure commodity business to a global beverage play with a tie-up with Pepsico. The company also has a stake of about 43% in Tata Coffee, and they have tied-up with Starbucks to roll out coffee outlets. The current valuation, which is purely commodity drive, enjoyed by Tata Global is about Rs 1,230.
Once it shows some improvement in these two areas, one would see a re-rating. This may take about a year or two; however, we are confident about the execution capabilities of Tata Global management. Q: What about United Phosphorus? What is the story here, and what kind of price target are you working with?
A: Last year was a slightly tough for United Phosphorus and the stock has not been one of the best performers. For now, we are seeing some indications of improvement in the agro chemical space globally. And, the company has been acquiring companies overseas too, which includes the recent Brazilian company at about USD 150 million.
It is at about 8 to 9 kind of a PE, and a global agro chemical play with a high profit margin of about 15 to 18%. Thus, it is a good bet and next year should be a good one for the company. We have set a target of about Rs 220 on this counter. Q: Your last pick is Bharat Electricals (BEL)? Why are you expecting on the orders front?
A: There would be some kind of focus on the modernization of equipment. Also, BEL has tied up with some of the global companies to get majority of this, but particularly pie of the orders. The company is cash rich. Looking at the latest balance sheet of the company, we got to know that the firm has cash of about Rs 6500 crore in its books, which is almost Rs 815 per share and zero debt. It is likely to register steady growth of about 15 to 20% in the top-line and the margins are reasonable. Company is also announcing its numbers today. We think that the first quarterly numbers maybe slightly subdued, at about 10-12% kind of growth, but overall the stock is looking good from stability perspective.