Aashish Tater bets on Balrampur Chini & Essel Propack

In an interview to CNBC-TV18, Aashish Tater, Head of Research at Fortunewizard.com picks Balrampur Chini Mills and Essel Propack as his multi-baggers for the day. He pegs Balrampur Chini Mills' initial target at Rs 58 followed by Rs 70 and Essel Propack's target at Rs 45.

Also read: Nifty deeply oversold; don't short sell says Sukhani Below is a verbatim transcript. On Balrampur Chini Mills For sugar stocks, we feel this is the time because sugar price itself is at two and half years low internationally. There is a likely bounce back from current levels of almost 30 percent rally that we cannot rule out. We were reading charts and we found that sugar is interestingly poised. The last three weeks' selloff on the sugar in the international market has not seen a lot of delivery based selling, which is making us very interesting. On domestic front, we feel there is a likely uptick of almost Rs 2 from current levels for the sugar companies especially Uttar Pradesh (UP) based sugar mills. This will see a lot of momentum in the short-term. Also, the Rangarajan Committee report is now likely to be discussed as well as we feel it will likely be accepted with maximum of the recommendations, which will go for rerating the stock and the sector itself.
 
Balrampur Chini Mills is relatively low on risk compared to its peers like Bajaj Hindusthan where we feel Rs 5,000 crore of loan book for Bajaj Hindusthan and enterprise value is riskier against a company like Balrampur Chini Mills, which is sitting on a marketcap of Rs 1,100 odd crores. The promoters of the company are buying from the market. If you see the disclaimer, for the last three-six months they are accumulating a very small proportion every time the stock comes to Rs 45. The stock is right now range bound between Rs 40 and 50 and we feel that this is the right time to buy from next one to one and half years perspective. Because the crushing season, which is coming, we feel is going to be very good for sugar companies. Despite increase in the supported advised prices by the states, there is a likely possibility that the company would be able to do well in terms of bottomline. Infact for the last quarter they managed Rs 60 crore because of the inventory they actually had gone and sold. They are still sitting on decent inventory levels and with higher uptick it will add directly to the bottomline. So, we are working with a target of Rs 58 and then Rs 70. We also ran the quant model that we normally use for many of the midcaps to track and to trade with. We have identified a pattern that the stock at least goes Rs 40 to Rs 70 zone almost every year and the probability for that is almost 80 percent. Last year also the stock has actually tanked to Rs 40 and then again retraced to Rs 70 where we see a lot of pressure for the stock coming in. This year could be very good for sugar sector that is a contrarian bet for the entire sector. Against Nifty and the midcap stocks, we feel this is one stock that should be looked upon from medium-term to long-term perspective. On Essel Propack Essel Propack is one stock where we found a quantitative finding, which was very interesting for us. If you see in last three to three and a half years, the company has been stabilising its margins and is able to grow in the topline but the bottomline has not materialized. The stock used to hover around 14 price to earnings (P/E) prior to 2007 and then 2007 to 2012 the company business has gone into consolidation and the P/E has shrunk to 6 times. This is one of the largest players in the sector. We are now seeing stability returning and the margins turning positive at the net profit level in European operations, we feel the stock will rerate significantly. We are working with an earnings per share (EPS) of close to Rs 6.50 for next fiscal on this particular stock and we have assigned a P/E multiple of around 7-7.5 times i.e. the lower quartile for the stock for last five years. Even if I see a P/E multiple of 7 times on a lower quartile, the stock should go and test Rs 45-46 on conservative side. When we superimpose the quant model that we use, we found that Rs 27 and Rs 29 is very interesting zone on weighted average except for the 2008 crash when the stock tanked to Rs 10 levels. Otherwise, the stock's lower average comes out to be Rs 27-29 and the upper zone comes out to be around Rs 47-48 levels. Again we had gone and revisited what the management has guided for and they are looking to reduce their debt by almost 33 percent. Right now, they are sitting roughly on a debt equity ratio of 1:2 and they are looking for a target of 1:5, which will add significantly to the bottomline. Looking at the consolidated front, the company would be able to do roughly around Rs 1,900 crore because they got some decent orders from Europe. So that Rs 1,900 crore would materialize into that transformation of Rs 6-6.50 EPS on consolidated front. Given all these factors, we feel that from next seven-eight months perspective one can definitely look for a target of Rs 45-47 on conservative side. The pedigree of the management is quite good and you can get 50 percent returns from current levels during these turbulent times. You can spread your bets between Rs 27 and Rs 33 zone on accumulation basis where you can make 50 percent from the short-term perspective. So, given all these factors and the risks that are involved in the midcap space, we are looking for safer bets and this is one stock, which fits the bill. That is why we are recommending this particular stock. Disclosure: Safe to assume stocks discussed may have been recommended to clients.