Aashish Tater's multibaggers: JSW Energy, Power Fin Corp

Aashish Tater, Head of Research, Fortunewizard.com is bullish on JSW Energy and Power Finance Corporation. He feels JSW Energy will give a dividend of Rs 2.5 in the next fiscal which roughly translates to 5.5 percent dividend yield. He feels Power Finance at current levels, given the price to book value of 0.4 times and stable margins of 4 percent plus even for the next year, is lucratively priced.

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JSW Energy at current levels is very attractively priced in the space of power. If you see the dependence on coal imports for this particular stock it is almost 55 percent. This is one stock which is likely to benefit given the outlook from three top coal manufacturers across the globe. If prices go down from current levels it will definitely benefit companies like JSW Energy.
The second big trigger that we feel at current price is that come what this company will be doing on a conservative side also close to Rs 7.5 EPS for this fiscal even adjusted for foreign adjustment. So on Rs 7.5 in a power space company we feel this is one stock which will definitely get rerated once opportunities for investments come in again.
Another thing is from dividend yield perspective, this stock is available at Rs 41 and the stock has given you a dividend of Rs 2. Even for next fiscal we are working for a dividend of Rs 2.5 which roughly works out to be 5.5 percent dividend yield. So given all these factors, this is one stock that can be accumulated from a six months perspective.
What is happening is that in the next six months we do not forecast much of outperformance from stocks like JSW Energy and it will languish between Rs 39 on downside and on upside around Rs 48-49. However, if someone takes a call from one year perspective we feel this is one stock which will likely get rerated to Rs 62 where a P/E multiple of 8.5 will definitely justify its valuation.
Also the project pipeline that the company is working with seven gigawatt which will get commissioned by FY17-18, we feel this is one stock which will definitely see 20-25 percent growth year on year for next two years in terms of profitability. So given these two factors on conservative side we feel the stock will go and stabilize around Rs 62-63 levels from next one year perspective. So a safe stock from risk reward perspective. On Power Finance Corporation (PFC)
There was a report from us on PFC at around Rs 190 where we raised an alarm for PFC ECB loans. We tried to run a model which tries to calculate the mark to market losses for these kind of companies but we felt that at worst the valuation should be somewhere around Rs 135-145 levels. However, the market has overreacted on it. Secondly after the management clarified we felt that the benefit of doubt should go to the management given that they still maintain 4 percent plus net interest margins on their loan book.
There are two things that we are forecasting. One is ban on currency Futures, this is going to take at least 6-7 percent of speculative money out of the system because medium enterprises are buying Puts rather than hedging their open positions and that is creating trouble.
On October 30, 2010, when NSE launched currency Options we had a report that rupee has had its best day and can dwindle 10 percent year on year. And in three years the rupee itself is at 60. We never forecasted 60 undoubtedly but the way this has happened is because we have actually introduced a weapon of mass destruction and that is why companies like PFC have bleeded.
However, at current levels given the price to book value of 0.4 times and stable margins of 4 percent plus even for the next year we feel this is lucratively priced and if someone has time horizon of one year or so we feel this stock will go and again stabilize between Rs 155-170. And at current levels we feel there is hardly any downside because all the mark-to-market roar that has been talked about has already been factored in at current market prices.
And in next one year the company will be able to compensate and the talk that is going on because of ban on currency Options if not Futures that will squeeze at least 6-7 percent of the entire speculative float. And this will see a huge retracement on rupee dollar equation. That is why we are betting on some companies which are very strong balance sheet wise but because of the equation they have been battered down and that is why we are recommending PFC as a buy from medium-term perspective. Disclosure: Aashish Tater has no individual positions in both these stocks.