PN Vijay bets on BGR Energy, Stride Arcolab for 12-15 mths

PN Vijay, Portfolio Manager, in a discussion with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee, shared his views on the top picked stocks from the midcap and smallcap space.

Vijay feels that investors should buy BGR Energy at the beaten down levels. He said, "The stock price is expected to go up to about Rs 550 with a time horizon of 12-15 months."

Vijay also suggests investors to go for Stride Arcolab as it is less expensive than Biocon or other midcap pharma companies. "The stock price would rise to about Rs 475 in the next 12 months from the current level of Rs 375," he stated.

Here is PN Vijay's analysis on his top picks. Also watch the accompanying video.

On BGR Energy

BGR Energy is a Tamil Nadu-based EPC contractor in the power segment. It had seen a rollercoaster ride in the market because its name was dragged into money matters dispute last year. A couple of days ago, the first quarter results were not good and the order visibility got reduced. The market hit the stock down and now, it is trading around Rs 405 levels, which is a very low price for the stock.

During this tough quarter, the company managed their costs very well. They are one of the few companies whose EBITDA margins have gone up. The company mainly supplies to NTPC and other power producers. Their orders have been delayed because they inked a coal linkage agreement including the big block buster order in Rajasthan. The order traction will resume from the next few quarters.

The stock is trading at a nice price to earnings of around 8 based on its '11-12 (earnings) projection, which is very low for the company. The company is one of the best managed power EPC contractors with very good track record and EBITDA margin. Buying the beaten down stock will be valuable for retail investors. It should go up to about Rs 550 in the next 12-15 months.

On Strides Arcolab

Bangalore-based Strides Arcolab is a research driven and a professionally promoted organisation. They concentrate on the export space. This company is not like Cadila or Cipla, which has a big domestic formulation business.

The company will launch the block buster oncology drug in 181 day period. They have tied up with Pfizer to get into the American market. Around 40 oncology drugs have been approved, which Pfizer will launch for them and this will give them an earnings visibility.

Their last quarter was very good and the earnings went up close to 30%. They had an interest problem because of some block up in working capital which is expected to get adjusted soon due to some of their milestone payments.

The stock is very nicely priced. At a price of about Rs 375, it is trading at about 7.5 times its EPS of 50 expected for 2011-12. It is a beautiful stock and less expensive than Biocon or other midcap pharma companies. It has a very strong earnings traction in the next two quarters due to some launches lined up in US. It is a classy and professionally managed company. I would target it at about Rs 475 in the next 12 months from the current level of Rs 375.