Aashish Tater's multibagger picks: Jet Airways, Hexaware

In an interview to CNBC-TV18, Aashish Tater, head of research, Fortunewizard.com picks Hexaware and Jet Airways as his multibagger stocks for the day.

On Jet, Tater believes that Rs 400 is a good opportunity for an investor to enter the stock.  He believes the stock can see a level of Rs 576 in the next 12-15 months. "Come the open offer, the stock will go to Rs 575 plus. If that does not happen, still it will go and stabilise around at Rs 575 levels. So, on risk reward front, this looks very lucrative and attractive at current levels," he explains.
On Hexaware, Tater is recommending a buy on dips as the stock is likely to see positive action in the next two quarters. Below is the edited transcript of Tater’s views on the stocks
 
On Jet Airways

I would be buying something like Jet Airways as it is giving us another opportunity to enter at Rs 400 levels. What has been the overhang in last few days for this particular stock is the Foreign Investment Promotion Board (FIPB) approval which is seen quite negative for the stock. But given all the efforts that the government has actually made, this will not be a difficult era for Jet Airways and Etihad to pass through. So, all the issues that are actually being talked about, we feel the market is actually overreacting.
If someone is a long-term investor in the stock, he will be able to get at least Rs 575 on the stock from next 12-15 months perspective. We ran the quant model on this particular stock, similar to what we normally run for open offer. There was no open offer. But when we actually did that and we adjusted the model suggesting that there could be an open offer, what was the derived value? It was exactly at Rs 400.
This means come open offer, the stock will go to Rs 575 plus - that’s the Rs 750 odd level. If that does not happen, still it will go and stabilise around at Rs 575 levels. So, on risk reward front, this looks very lucrative and attractive at current levels.
Secondly, the rupee was in 53.50-54/USD zones when Etihad actually announced for the Jet deal and now the dollar rupee equation is slightly moving towards 58-59. So, the currency is already in favour of Etihad by 8-9 percent. Say a scenario crops up where they have to make a mandatory open offer because if one sees a 100 equity base being shifted, one is actually buying 26-27 percent on 100 equities but because of the diluted basis, one is talking about 24 percent to the Etihad management.
Under any circumstances we feel it would be unfair if the retail shareholder does not get the opportunity to exit at Rs 750 levels. So, we feel that there would be a move from Etihad to give an open offer even to retail shareholders where they will not get substantial subscription because a large part is owner by institutional among the remaining float if I readjust that 75 percent which will be controlled by Etihad and Jet after the adjustments. So, from that angle also, if the move is taken, one is making a handsome return at current levels. Given all these angles, we feel that this is one stock in the topsy-turvy situation you should be definitely looking at from medium to long-term perspective also. On Hexaware

We ran 2007 to 2013 dollar index model which suggested that every time there has been a carnage in terms of dollar index going strong against other emerging market currencies, the deal situation has gradually improved for players. In 2010-11, there was a dollar index around 2010 somewhere in the August season, it made a high of Rs 89.25 in terms of dollar index and now it has corrected to Rs 82 but the rupee situation from 46 has gone to 59.
There is an abbreviation around this level that this is the worst that can be seen but it is no ones guess because the way the situations have panned out. If one takes the similar scenario, when we tried to realign with the deal streak model in 2007-2012, there has been no mega deals in the space where Hexaware or Polaris are involved. But now, we feel given the rupee-dollar equation, it makes it lucrative for somebody to actually look at the company.
General Atlantic wanted to separate from this particular stock around the Rs 135-140 odd mark but because of a valuation concern of just 10 percent, the deal could not go through. There are markety rumours that Citi group has been hired for due diligence and this time the rupee actually favouring and General Atlantic sales warrants at Rs 135-140. If that happens at 16 percent float, then others’ hold will be squeezed to the partner that wanted to enter into Hexaware.
If that happens, the stock will go zooming around at Rs 105-112 levels on conservative side and even Rs 135 given the euphoria and the midcap IT space is still building. We have seen what has happened to Polaris from Rs 110 to Rs 150 just on a deal talk has spiked in just three-four days. Again it has cooled off. But if one sees the situation right now at 5-6 multiples and currency favouring the IT stocks, they are roughly ruling around 4-4.5 times forward for next year. If I adjust with the currency depreciation, one another positive development for Hexaware is that a large part of their revenue is still un-hedged. So that is going to act as a very big trigger for next two quarters at least for the stock. So it’s a buy on dips candidate from our side.