Tater's 2 stock ideas that may give you 25-50% returns

In an interview to CNBC-TV18, Aashish Tater, Head of Research of www.fortunewizard.com picks two stocks as his multi-baggers for the day. Tater has selected Mahindra Ugine Steel Company and Dena Bank with target price to be Rs 80-82 and Rs 128.50, respectively.

Also read: Market may become 'untradable'; buy on deep dips says Sukhani Below is a verbatim transcript of the interview: On Mahindra Ugine Steel Company Mahindra Ugine Steel Company is one stock where we feel there will be substantial upside from current levels from next 6 to 8 months perspective. If you see last quarter, all the worst has been factored into. The story behind this is that the company has gone for a reorganisation exercise and they have hived off their loss-making alloy steel business into a separate subsidiary Navyug Steel for which they have realized 49 percent stake for Rs 218 crore by issuing shares to Mitsubishi and Sanyo Special Steel Pvt Ltd. In this particular exercise, the profitable aspect is going to get reported in the standalone business and even on consolidated front the worst seems to be over within next two to three quarters, because the company is now focusing from alloy steel business to specialized steel business. Given the parentage of Mahindra and Mahindra (M&M) and expertise of Mitsubishi and Sanyo this stock is having very good prospects from current levels of Rs 55. If you see this particular stock at current levels, the current marketcap is roughly around Rs 170-175 crore. Remember its stamping business has four plants situated into Khopoli, Rudrapur, Pune and Nashik. The Khopoli and Nashik plant (production) itself is much more than the current marketcap. Apart from that the Rs 218 core odd issuance for 50 percent stake means that 50 percent should also be valued somewhere around at Rs 220 crore odd. So you are getting the stamping business virtually free. So, from this angle we feel there is limited downside. From upside perspective that the company's first plant has just now begun and with Mahindra and Mahindra Sport Utility Vehicle (SUV) doing good business we feel the fifth plant that has just come up will do a substantial business and add to the top-line. We are forecasting close to Rs 938 crore odd to Rs 975 crore odd in terms of top-line on standalone basis. Given it roughly works out within net profit margin of 2.5 percent even on conservative side the company will be able to report Rs 25-30 crore odd of profit for next fiscal. If that happens the company will report an earnings per share (EPS) of roughly around Rs 9.5 and automotive stamping business roughly works at 9-9.5 times forward multiple. We feel even on conservative side the stock will go and test Rs 80-82 from next six to eight months perspective once this discounting happens post Q1 of the next financial year, because by then there will be good forecasting and annualized EPS will be taken into account which will definitely rerate this particular stock from medium to long-term perspective. On Dena Bank First of all, before I take a call on Dena Bank, the stock and the market has been making a pattern on the index. We have been upbeat on the index right from 5,000 level. 5,000-6,000 then that 33 percent correction comes in -- last week when we discussed, we said this was very healthy for the market. Now, this topping out business will happen somewhere around that 6,244 mark that is what our projecting model suggest. During this particular phase, there will be relative outperformance from public sector undertaking (PSU) banks because if you see the calendar event that is poised for PSU banks, we feel Dena Bank will have an outperformance in the PSU banking space itself from the midcap PSU space. Take these two things together, you will find that this company is trading between 0.7 - 0.8 times price to book value in the banking space in the PSU space, gets rerated to approximately 0.9 to 1.1 times. On price to earnings (P/E) front, the worst case P/E multiple is assigned at around 3.5-4 times and the best case P/E multiple for this space is 5.5 times with an upward trajectory. Given that the company's presence is in Gujarat, the western part where the cream of the business is right now doing fairly well, we feel this particular stock can outperform its peers significantly from current levels. So, we ran our projection model even on this particular stock. It is a quantitative call from our side. We feel that W that has been made at Rs 90.05 is a classical case where it will give you an outperformance around Rs 128.50, which is roughly 25 percent higher from current levels. All these factors coming together, the calendar events of RBI cutting the interest rate which is almost a given thing for next meeting and even another 25 percent cannot be ruled out given that the guidance will become more market prone than focusing on inflation control. If these two factors are combined, we feel PSU banking as a space will outperform and Dena Bank, given all these factors, will have again a significant rerating on upside. Even on valuation perspective at 0.75 times price to book value, we feel this is one stock which is relatively undervalued to its peers. It is much better to switch from some large PSU bank names to this particular stock given it is just Rs 3,000 crore and it has almost 1,200 branches with the presence in India's gross domestic product (GDP) contributor Gujarat as a main base. So, we feel 30 percent can be made from short-term to medium-term perspective on this particular stock. Disclosures: Safe to assume that stocks discussed and recommended to clients but no personal position.