Tater picks 2 stocks that can earn 25-30% returns in 1 yr

In an interview with CNBC-TV18, Aashish Tater, head of research, Fort Share Broking recommends Karur Vysya Bank and State Bank of Bikaner and Jaipur (SBBJ) as his multibagger stocks. He sees substantial upside in these stocks from current levels.

On Karur Vysya, he sees a 25-30 percent return in this fiscal and has set a target of Rs 630. He sees 25-30 percent return for SBBJ as well from a one year perspective.

Below is the edited transcript of Tater’s views on the stocks.

On Karur Vysya Bank

Last time we recommended ING Vysya Bank for two years. We have been recommending both these stocks as a portfolio bet for a 25-30 percent return year-on-year (Y-o-Y). I see no change in this particular strategy because the way these two banks have shaped out, I feel there is likely 25-30 percent return even for this fiscal where we are pegging a target of Rs 630.

If one sees the strategy that the bank has chalked out, they are trying to double their business over the next three years from the current Rs 58,000 crore of disbursement to almost 1.25 lakh crore.

This means the company is sitting on an ATM size of over 1,400 and more than 550 branches will make an earnings per share (EPS) of almost 1.5 times in next two years giving a 25-30 percent growth Y-o-Y. There has been a very simple logic that we have been picking quality stocks where the asset quality is relatively safe. They have diversified into relatively stable areas. We feel these are stocks and banks where one can take a longer-term view rather than chasing some of the poor quality public sector undertaking (PSU) banks where the question on the quality of assets are very high. So, I am looking at strategic switch and still feel that these are stocks, which will definitely do well even in days to come.

Even from two to three years perspective, if someone is looking for a portfolio bet for almost 25-30 percent Y-o-Y, ING Vysya Bank, Karur Vysya Bank all fit the bill. That is why we are recommending this stock as a portfolio bet. 

On State Bank of Bikaner and Jaipur (SBBJ)

There has been a very interesting development into the State Bank of India (SBI) subsidiary post the statement of the managing director. What has happened is that the company is looking to merge its subsidiaries and three of them are listed with the parent SBI itself. So, what will happen is that State Bank of Bikaner and Jaipur (SBBJ) will go for a book value merger at a discount of 20-25 percent. Looking at the adjusted book value for next year for SBBJ, somewhere around Rs 743, we feel at current market price this is one of the cheapest bank available from price to book value perspective.

When we ran our model that we are likely to trade for PSU stocks especially for PSU banking stocks, it gave us a very clear indication that one should be buying something at this level because the worse one can see is 0.7 price to book, however, it is trading much below that. This is because ultimately it will go and merge with the SBI.

Once this process starts in over next 12-15 months, the stock will give a return of almost 25-26 percent from current levels for a target of Rs 530. Now, when we ran the same model on State Bank of Indore, the price to book value was at 0.7 times, 34 to 100 shares if I recall correctly for SBI to State Bank of Indore exchange ratio. So, even on similar platform since we get something like 0.7 times, the worse we are going to get is Rs 530 but in next fifteen months, one is going to get two times dividend which is Rs 14.5 for this fiscal. Even for next fiscal, we are looking at the similar dividend payout. So, that 28-29 handsome reward would also be factored into the profits.

At current levels, given the worse is already factored into the company, we feel simple mathematic is to invest right now and wait for the merger to happen. If it happens within 12-15 months as indicated by management, we feel this is a surely 25-30 percent return giver from next one year perspective.

This is another stock where there is safety and despite it being a PSU bank, there is still a lot of safety in the stock because of the new development that has happened.

Disclosures: Stocks discussed may have been recommended to clients.