Aashish Tater's multibagger picks: L&T Finance, LIC Housing

Aashish Tater, head of Research, Fortunewizard.com picks L&T Finance Holdings and LIC Housing Finance as his multibaggers.

In an interview to CNBC-TV18 Tater says that if someone wants a 20-25 percent capital growth, they should go and park on L&T Finance Holdings and should allocate a decent amount in this particular stock from longer-term perspective.
Tater also adds that the price to book value gives a substantial upside from current levels to companies like LIC Housing Finance where with a target of close to Rs 295 and Rs 340 from one-two year perspective. Below is the verbatim transcript of Aashish Tater's interview on CNBC-TV18 On L&T Finance Holdings
Looking at the current policy structure, this particular company fits the bill. Non-banking finance companies (NBFCs) are likely to remain euphoric, today, tomorrow and a few days from hereon.
There are 17 big corporate houses from tier I and tier II structures that will be jumping into this particular race. Only the top six-seven corporate houses will be able to make it to the final list.
There are various models including something from the past, when that Global Trust Bank issue happened. The RBI guidelines mandates one important aspect and that is integrity, which is relatively subjective. All the companies that have been listed by that particular promoter group entity, if there has been a clean history of those companies, they will be able to make it to the final list. So, there will be five to six top houses apart from two public sector undertakings (PSUs) that will be able to make into this particular space.
Larsen and Toubro Finance Holdings, there is no identifying promoter group but they have good clean corporate history. Every time you talk about valuations, it looks at 20 price to earning (P/E) multiple and relatively aggressive price to book value, given it is a holding company. But even after initial public offering (IPO), there was skepticism on this stock and we were upbeat then also that this particular stock is a portfolio bet and even now the stock is a portfolio bet.
Considering structure which will be three-four years down the line, if Larsen and Toubro (L&T) get the banking license that they will easily get through, it will make Rs 10,000 crore business from that particular entity over next four-five-six years. This means on a relative basis that particular asset will be equal to the current marketcap of Rs 14,000 crore given they will be able to hold 25-30 percent that will still be a substantial amount from next four years perspective.
So, if someone wants a 20-25 percent capital growth, they should go and park this particular asset into their portfolio and should allocate a decent amount in this particular stock from longer-term perspective.
On LIC Housing Finance
LIC Housing Finance is a definite candidate for the banking licence, and can get preference over other public sector undertakings (PSUs). It has 200 branch network with a decent coverage in the semi-urban structure where they have a very strong uphold. Now for them to strengthen their business model, they would be looking for banking license.
Secondly, when we ran this particular projection model on PSU, we felt that only three companies out of so many PSU companies that have been talked about could fit the bill where LIC Housing Finance stands at the top gains then IDFC followed by Rural Electrification Corporation (REC). We are relatively doubtful about Power Finance Corporation (PFC) going through this particular banking license. In fact, REC is also a very low probability float of around 0.4 times.
LIC Housing Finance, 200 branch networks, very strong parentage. It makes sense even for LIC Housing Finance to go and back this and take a commitment from government because a large part of their own revenue comes from this particular revenue business.
If you integrate that particular business model through your business network, think about the potential it has to reach in the entire area, LIC Housing Finance is a trusted name. In the rural space, you do not talk about many insurance companies but LIC. So, a brand that is easily recognizable will have more impact on the entire reach. Given this one particular asset, that LIC Housing Finance will back, it has much more potential to get the banking license.
If you see this entire chapter of the RBI policy, from private space there will be Tatas, Birlas, Mukesh Ambani backed Reliance. Apart from this, there will be Bajaj and also Mahindra and Mahindra (M&M), they are the tier-I structure that we are banking on  and will definitely get preference over the tier-II structures. In Tier-II structure, there are some very good names but they will be relatively bad because RBI at the end will be very skeptical about issuing more than 7 license in total. They will be issuing one or two licenses to PSU sectors. So 5-4-6 licenses will get to large corporate houses.
Given the structure that IFCI has formed, it will be either merged with IDFC or LIC Housing Finance in order to get rid of this particular asset. That will be a negative factor for LIC or IDFC in the short-term. However, given all these developments, the price to book value gives a substantial upside from current levels to companies like LIC Housing Finance where we have a target of close to Rs 295 and Rs 340 from one-two year perspective. Disclosures: No personal holding. Safe to assume that stocks discussed may have been recommended to clients.