Aashish Tater's mutibagger picks: Ion Exchange, MOIL

In an interview to CNBC-TV18, Aashish Tater, head of research at Fortunewizard.com picks Ion Exchange and Manganese Ore India Ltd (MOIL) as his multibaggers.

Below is an edited transcript of Aashish Tater's interview on CNBC-TV18 On Ion Exchange
Ion Exchange is into a water treatment space and has promising prospects. We were studying global peers and M&A deals in this particular space which has happened in last six-eight months. One megadeal was struck for USD 500 million and happened at a projection of almost 1.2 times sales. If you superimpose the same valuations on this particular stock, the stock will report sales of around Rs 750 crore. If I adjust with the enterprise value, the value for equity to market cap to sales is about 0.35 to 0.4 times and is one-third of the valuation of what the global peers are doing.
Zero B is one brand that the company is working with and is fairly reputed. Whenever Budget is around, the stock makes a spook of almost 15-20 percent on conservative side from the levels of lows of January, which is around Rs 112 and give you 20-25 percent return during the Budget. Also Read: Mkts may see consolidation, Q3 results to set tone: Experts
For last five years, we superimpose the entire budgetary spend on water and sanitation space. It has been growing at almost 14-16 percent and that is the time when this particular stock hogs limelight.
Even on fundamental front, the company has been growing consistently. Due to government's lack of spending and doing them fast, the stock has been dwindling at 10-12 percent growth which would get monetised given that government has now started moving in the right direction in terms of reforms. Considering government initiatives, the stock would do at least Rs 880 crore of sales for next fiscal. Even if I see the slim margins that the company is working with, because right now they are working more on R&D space so that they get good products into the market, the company is available at mouthwatering levels compared to global peers.
On conservative side, we have valued the company at around Rs 170-180 to Rs 220 on the upper side. However, 20-25 percent can be made by Budget which is nearly a month because that has been the trend for this particular stock for almost 3-4 years. No personal position but safe to assume stocks discussed have been recommended to clients.

On Manganese Ore India Ltd
Before taking a call on Manganese Ore India Ltd (MOIL), we had worked out with our model which came out with a report that 'The Phoenix will rise again', and we chalked out those five important factors that would lead to a rally for Nifty. Almost everything is factored in but when we superimpose on our quant model, the entire Nifty pattern is 2006 pattern where there was superfast rally in the February, March and April followed by a crash in May. If that happens then we are seeing good levels before there is a correction of 20 percent from highs. In that case, we are trying to be ultra defensive on some of our picks.

The way things are moving out, the non-ferrous space will outperform the ferrous space which has been our call for almost last two years and that is why Tata Steel and Steel Authority of India Ltd (SAIL) and others have not been able to give even a marginal return, forget about a positive return.
Taking a call on MOIL, there are two positive triggers. The company will clock a sale of Rs 1,080 crore for next fiscal that is our conservative projection while the market consensus is around Rs 1,125 crore. The company is working with a net profit margin of 48 percent on adjusted basis. So, 48 percent gives you a profit after tax (PAT) of Rs 500 crore and the current market cap is Rs 4,200 crore.
The next important trigger is the cash that this particular company is holding which is again over Rs 80 to Rs 100 per share that is going to give you a comfortable valuation.
The third important aspect is the dividend yield that the company is available at. 3 percent with almost debt-free status for this particular company on cash adjusted basis. This is fairly lucrative. We are forecasting a bottom-out for the Manganese and ferrous space somewhere in April – May season and that will see lot of momentum for price up shift.

What is interesting for playing this non-ferrous or ferrous space is that a rupee change into the top line adds to the bottom-line because there is expansion in terms of operating profit margin. MOIL is one pick where there is hardly any downside, not even 10 percent from current levels given good cash levels. Strong earning even on the bad phase the entire sector is going through, but if there is an upward shift the stock would stabilise at around Rs 325 levels.
Stabilisation doesn't mean that it will stop around that level. We have a target of Rs 370-380 but are taking a conservative call right now given that is a projection from our quant model. This will hog limelight because of news flow that is coming in MOIL. The company recently announced that it has applied for eight coal blocks which was given by the government of India mandate which is a positive for this particular company. Given all these fundamental developments for the company, this is on-risk reward front attractively positioned even if the projections work against few of our models.