Check out: Angel Broking's 2 frontline bets, 2 multibaggers

The Indian market has been rangebound over the last few sessions. In an interview to CNBC-TV18, Rajen Shah, Angel Broking says, liquidity is driving the market. "Fundamentally, the market is more than fairly priced," he adds.

However, he sees opportunities in the market. "There are some good opportunities in the frontline space. We have been recommending Reliance, Mahindra and Mahindra in the frontline space," he adds. He has picked Fairfield Atlas and Wendt (India) as his multibaggers for the day. Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy. Q: What is your view on the market now? Does it look like there are still some buys or are you now getting a little worried that the good news is fairly priced? A: Fundamentally, the market is more than fairly priced, but liquidity is driving it. As long as liquidity continues, we could see higher levels. After listening to the Prime Minister’s speech yesterday, it is very clear that significant reforms cannot be expected. I think the fate and the directions of the market are purely now on the liquidity factor. But, there are opportunities in the market. There are some good opportunities in the frontline space. We have been recommending Reliance, Mahindra and Mahindra in the frontline space. Also, if you look at the broader market, there is a lot of value and some of the stocks are quoting at very cheap valuations. So, if you have money and patience, I think it’s time to start nibbling actually. Q: Why do you like Fairfield Atlas? A: It’s a very good quality company. It’s a very low profile company, rarely spoken about. It’s a smallcap company. The market cap is just about Rs 434 crore. Eighty four percent of its equities held by TH Licensing, a wholly owned subsidiary of Fairfield Manufacturing Company US, a part of the OC Oerlikon Group of Switzerland. OC Oerlikon Group of Switzerland basically operates in about 38 countries at about 150 locations and is a 4.2 billion Swiss franc group. So, it has a very strong well-known parent. What does this company do? This company basically manufactures automotive and industrial transmission gears and gear boxes. Last year, it reported about Rs 250-260 crore of turnover. Almost 50% of it came from exports. Even in the domestic market, it is doing pretty good. It has got very good clientele like Mahindra and Mahindra, John Deere, TAFE, Carraro to name a few of its clients. Financially, this company has been doing well for the past two years. Last year, it reported 50% growth in top-line and a very decent bottom-line, resulting in an EPS of Rs 12. The first quarter of the current year was challenging for the best of the corporates and yet this company reported 32% growth in the top-line and about 175% growth in the bottom-line. The bottom-line went up from Rs 3.7 crore to about Rs 10.2 crore. Assuming that there is no growth in the bottom-line for the next three quarters still the company will end the current year with an EPS of almost Rs 16-17. Even if you give it a 15 PE multiple, I think the stock is worth about Rs 240-250. But the story doesn’t end here. The new SEBI directive of minimum public holding of 25% will be effective from June 2013. Promoters with more than 75% holding either have to bring it down to 75% or delist the company. When that comes, we expect the parent to come out with a open offer. Most of the companies, which have got very good multinational companies as a parent, are all quoting at 25-30-35 PE multiple. Even if you give a 20 kind of PE multiple to Fairfield Atlas, supposing at 20 PE multiple the parent goes in for delisting this company, the stock is worth Rs 300. It’s not a big deal for the parent because only 16% of its equity is in the market. So, if they were to come out with a 16% open offer, even at double the current rate, they will have to just pump in Rs 140 crore. It is peanuts for the parent. So, we are looking at a very decent upside. The risk in the stock is very low. Disclosure: I have no holding in the stocks discussed. _PAGEBREAK_ Q: What about Wendt (India)? A: If you see the last nine-ten year’s performance of this company, it has been growing its top-line at a CAGR of about 16-17% and the bottom-line has been growing at about 18-19%. But it has been rarely spoken about in the media. Last year, I think on the 30th of May or 31st of May, I had recommended this stock, the price then was Rs 1,200. We had said that this stock will double in two years. The stock went up 70% in a market that gave no return actually. If you see last 12-15 months, the market has not delivered any kind of major returns, but this stock went up 70% to touch a high of Rs 2,050. Now, it has come back to the level of about Rs 1,675-1,700 levels. At this level, it holds very good prospects. The company basically manufactures super abrasives and non-super abrasives that are used in variety of industries, automobile, engineering, cutting tools, steel and a variety of other industries. Last year, it reported Rs 100 kind of earning. This year, we don’t expect any major growth. We expect the earnings to be at Rs 100. But next year we are expecting the earnings to go up to about Rs 125. The reason is that the company has launched a number of new products. To showcase these products, the company has launched a new initiative called Wendt-On-Wheels (WOW).  The management is expecting very decent revenue from these new products because of the superior quality of the products. The company deserves PE multiple of 20. The reason is that the equity of the company is very low, just about Rs 2 crore. Forty percent of the equity is held by Carborundum Universal, a Murugappa Group Company, a very clean group and 40% of the equity is held by 3M US. So, the floating stock in the market is very low just about 20%, Rs 22 crore, about 4 lakh shares are  in the market. I believe the stock has potential to go up to Rs 2,500. There are various other reasons. One is that most of the Murugappa Group Companies have split the stock. This stock is a 10 paid-up, so I am expecting the stock to split from 10 to 1. That will increase retail participation and fancy for the stock. Secondly, last time the company delivered bonus was in 2003. So, I am expecting that too. The third and the most important thing is that Winterthur Technology Group of Germany held 40% stake in Wendt. This was taken over by 3M US. As per the SEBI guidelines, 3M has to come out with open offer for 20% for the shareholders of Wendt. Carborundum Universal says that it has the first flight of refusal. Hence, it has gone to Company Law Board (CLB). If the Company Law Board rules in favour of Carborundum, probably it will try to takeover 3M’s stake and then again come out with an open offer for the retail shareholders. If it doesn’t rule in favour of Carborundum then maybe 3M may come out with an offer to buyout Carborundum and shareholders of Wendt. 3M India, which is a listed company in India, is trading at 60 times the earnings. So, either ways the company has got in a very decent upside. I think it’s a quality company.