Aashish Tater picks EID Parry, Gujarat Gas as multibaggers

In an interview to CNBC-TV18, Aashish Tater, head of Research, Fortunewizard.com picks EID Parry and Gujarat Gas as his multibaggers. Tater expects sugar stocks to outperform and is therefore bullish on EID Parry. Gujarat Gas will give multifold returns from a medium-term to long-term perspective, he adds.

Below is the verbatim transcript of Aashish Tater's interview on CNBC-TV18 On EID Parry
Before the Budget we commented on how the patterns of May 2006 is being reflected into the February pattern of 2013. We were expecting this particular crash and this is a large trend correction which is very healthy for market. We are upbeat that another 100 points come by, we will definitely look for some midcap top picks where there is relatively lot of stability and good comfortable valuations. That is why we are looking for these stocks where we feel valuation wise it is very comfortable. EID Parry fits this particular bill. Also Read: Mildly bullish in short-term; hope for a rally: Sukhani
Take a call on sugar sector as a whole. Come April 15, we expect there will be a rupee realisation addition by all the companies, which will be seen through commodity price rise. Another rupee hike will be sometime from May 15 to May 30, suggesting along with what the base research is done on. If that happens along with government initiative of yesterday’s food minister commentary on this particular sector, it will be extremely positive for the sector.
EID Parry is one stock where valuations are very comfortable because there are two things. One from the balance sheet side, where it holds 62.61 percent of Coromandel International which is roughly Rs 5,000 crore of marketcap of company, this gives a stake of Rs 3,000 crore and the current marketcap is Rs 2,500 crore. If you discount it with the holding discount, you are getting the EID Parry sugar business almost at Rs 600-700 crore which is relatively lucrative given the strong prospects of the business for next 12 months. We expect a good crushing season for sugar companies and this will be positive for the stock.
Considering this entire aspect on the valuation model, on conservative side, from next 12 months perspective, this stock is set for 50 percent return. At current levels, I do not think there is even more than 5 percent downside given the strong promoter group and also the holding value of Coromandel International that is being reflected. Overall, the stock will go and test Rs 225 mark.
We are working on quant model where we have been relatively successful for our long and short strategies and EID Parry has made a W after 2006, 2008 in 2013. It is reflecting the same sugar cycle belt that every five year there is a sugar boom. This is the time when sugar stocks could outperform the major stocks and that is why we are upbeat on this stock.
On Gujarat Gas
In the last 12 months, the promoter converted from British Gas to Gujarat State Petroleum Corporation Ltd (GSPC), which is a positive.
The company had given an open offer for 26 percent stake at Rs 314.11 which was the discovery price for the deal. If that has to happen, only 8.58 percent got tendered. That means, out of every three shares you held only 1 share, got tendered by three investors. The strong hands are unwilling to tender even at Rs 314 and that made the stock interesting. Looking at the shareholding pattern that will now get reflected because of the open offer getting closed, the institution including foreign institutional investment (FII) and domestic institutional investment (DII) would hold somewhere around 20 percent in this particular stock. 73 percent will be owned by the promoters. So, 93 percent gets absorbed from that angle. Only 6-7 percent float is left.
The ones who tender into the stock, few of those would be looking to buy this particular stock at Rs 240-250. This is one asset rich company with very good valuation at around Rs 250-260. So, from downside perspective, this is close.
We ran the quant model that suggests us to find a pattern of W, that W completes somewhere around Rs 244.80. That means even the stock corrects by 5-6 percent at maximum, W would take the stock again to the open offer price of Rs 315. It is a spread strategy.
Right now, people are looking for comfort rather than taking for 30-40 percent return and Gujarat Gas is one stock that is a portfolio bet from next six-eight months perspective till that particular aspect of midcap carnage ends. This will be one stock, which will be looked upon by large institutions for accumulating, given the fundamentals. From fundamentals perspective, the stock is trading at roughly 11.5-12 times but the stock saw carnage from Rs 400 to Rs 260 just because of the gas development Petroleum and Natural Gas Regulatory Board (PNGRB) issue and that was one negative that was taken for the entire sector.
We upgraded Indraprastha Gas Ltd (IGL) at Rs 220 then again at Rs 245 and it has been now showing a pattern of Rs 350-360 which is also being reflected into Gujarat Gas once it completes the W pattern. This is one stock that is definitely a buy on dips from both fundamental and from this particular technical perspective model that we follow. This is going to give you 20-25 percent return from next twelve months perspective. So, it is a safe bet from our side from medium-term to long-term perspective. Disclosures: Safe to assume stocks discussed have been recommended to clients but no individual positions.