Mudar Patherya's top bets: Sree Rayalaseema, Godawari Power

Investment Advisor Mudar Patherya is bullish on midcap stocks Sree Rayalaseema Alkalies and Allied Chemicals and Godawari Power and Ispat. He sees these stocks giving better returns going ahead.

Below is the edited transcript of Mudar Patherya's interview with CNBC-TV18. Q: What is the story behind Sree Rayalaseema Alkalies and Allied Chemicals? A: It is a very interesting counter. In years of stock picking, I have seldom come across a company where the market cap is lower than the projected cash profit for the particular financial year. In this particular case, there is a Rs 10 crore post tax and Rs 10 crore depreciation for the last quarter. I would assume that the company will do close to Rs 75 to Rs 80 crore of cash profit. I am not even saying EBITD, I am not even saying cash profit for the current financial year. The market cap is just about Rs 75 crore. I am also saying that in case the company announces 10 percent dividend- I really hope that they do, there would be a 10 percent yield because if the stock is about Rs 11 or Rs 10 face value, which means on a Rs 75 crore market cap one could get a dividend outgo of nearly about Rs 6 crore to Rs 7 crore, which is fantastic. It is not even downside. This is the basement and rock bottom scenario available from which you get a doubling; it is a two bagger available. This is phenomenal possibility here. Q: Is that your price target – a doubling of it? A: No. In fact it could well be more. Very interestingly, the company is projecting a Rs 1000 crore top line for the current year and Rs 1200 crore for the next year. It depends on what kind of a momentum is sustained within the caustic soda industry. The company is doing something very interesting. It has got problem with the allocation of chlorine. It does not know what to do with chlorine. So, the next financial year they are setting up a downstream unit to take care of their captive chlorine, which is a very powerful kicker. This is company with a market cap of Rs 75 crore generating close to about Rs 120 crore of EBITDA and Rs 80 crore of cash profit and Rs 40 crore odd of post tax profit for the current financial year. Really can’t go wrong. _PAGEBREAK_ Q: Why do you like Godavari Power & Ispat? A: It is completely contrarian. At a time when nobody wants to look at steel, I am beginning to look at steel. We got more steel companies reporting dreadful results, most of them are in the red. So, the idea is who is going to be the next quick mover. Let us go very logically, the next quick mover is already showing its colours today because the company which will move maybe in the next couple of years will be probably reporting a positive bottom-line and positive EBITDA. Number two, it is asset light and these are the two drivers of my selection of the next steel pick. Godavari Power & Ispat is giving me the kind of fundamentals that I would wish to invest in. It is integrated; it has got right from iron ore right down to power and ferro alloys and steel and value added steel. Secondly, it has got a phenomenal opportunity coming up in palletisation. For a lot of people they want to see what is happening on the steel capacity front. My advice would be look at what is happening in the intermediate spaces. Palletisation is going to be good story because the margins available today in palletisation are remarkable. I will give a very rough rule of the thumb; even if we take a Rs 1000 per tonne as profit. They have got a 1.2 million tonnes per annum plant coming up, so they have Rs 120 crore of net profit accretion happening over the next year, year and a half. In addition to what already they are earning today. This is a very interesting opportunity besides I get a solace and comfort from the fact that the promoters have applied for preferential warrants convertible into shares at Rs 130 a share. That gives a certain comfort levels that the stock today is at Rs 116-Rs 115, so I am pretty safe here. Once the palletisation plant is commissioned, one will start looking at a number of steel companies that are moving with palletisation in their portfolio. Palletisation is the clue that one needs to look at. Q: Have you been tracking any of these liquor stocks? A: No. I don’t drink. Liquor, cigarette I generally stay away.