Multibagger picks: 2 stocks that can fetch 50-100% returns

In an interview with CNBC-TV18, Rajen Shah of Angel Broking picks two stocks as his multi-baggers for the day. Shah says, Navneet Publications and Mahindra Ugine, are looking interesting at the current price. He has a target of Rs 100 and Rs 120-130, respectively on both the stocks.

Also read: Mkt is rangebound, do not trade says Sudarshan Sukhani Below is a verbatim transcript of the interview: On Navneet Publications Navneet Publications is looking interesting at the current price of about Rs 64. Based on the developments, which are happening in the education industry and in Navneet in particular, I think 50 percent upside in this stock over the next 24 months is possible. We have a target of around Rs 100 for Navneet in about 24 months from now. Navneet is a very dominant player in the education content publishing business in Maharashtra and Gujarat. The recent changes in syllabus in both these states augurs well for this company. In fact, because of the changes, the management is expecting at least 15-18 percent kind of growth in its publishing business. Since, this business contributes about 60 percent of the total top-line, it will have a material impact on the overall performance of the company both on the top-line and bottom-line. We are already seeing that. The second business is a stationary business where the company is picking up very well and in fact has got very good export orders from US. So both these businesses are doing very well. Recently, about a year or so back the company got into education business in a direct way. It took up a stake in Hyderabad based company called K12 by pumping about Rs 30 crore. This K12 basically is into the school management business and manages about 67 state board schools in Hyderabad, in Andhra Pradesh and about 8 junior colleges. That business is picking up very well. The management of K12 is talking about taking this to about 200 schools over the next three-four years in the remaining four southern states. It is a huge opportunity Navneet is getting into. Besides, this school management business, which it will be doing via this stake in K12, we believe that this tie-up will help it grow its publishing business that has been so far very dominant in Maharashtra and Gujarat. Now, it will be entering into this publishing business in Andhra Pradesh, Tamil Nadu, Karnataka and Kerala. This is a long-term story. It is going to take three-four years to play out. It is a huge opportunity. Based on all this, we are expecting at least 18-20 percent kind of topline growth in Navneet for the next three-five years. One more interesting thing happened in Navneet is that the director of primary education in Maharashtra, he is talking about digitalizing about 60,000 schools over the next three-four years. This will entail an investment of almost about Rs 900-1,000 crore over the next three-four years. So this is also a very big opportunity and Navneet feels that it has got a edge over competitor because of its content. So net-net, a lot of positive things are happening in the industry and in Navneet in particular. That is why we believe that this stock at Rs 64 has got a very low downside and the upside is very high almost 50 percent that too tax free. If you see the financials, yesterday the company declared numbers. Top-line went up 40 percent, bottom-line went up from Rs 4 crore to Rs 11 crore in a 175 percent kind of jump in the bottom-line. Based on this number and the first half number, we believe that Rs 4.5 kind of earnings is very much possible for Navneet for the current year. However, next year we are expecting about 20 percent jump in bottom-line. So around Rs 5.5 is what we are expecting for next year. If you give a company like Navneet, which is a recession proof industry, about Rs 17-18 kind of price to earnings (P/E) multiple, the stock can easily go to about Rs 100 levels. It is a clear-cut case of about 50 percent upside with about 10 percent downside risk. On Mahindra Ugine This is a very interesting company. I believe that Mahindra Ugine is all set to regain its lost glory. It had very good times in 2004-2008 period when every year, it used to report an average profit about Rs 45 crore. It had a very good past. After that because of the alloy steel business, the company was into trouble and still continues to be in trouble. Some interesting things have happened in the company and that is why we believe that this stock could be a dark horse and could give you about 100 percent upside in about 24-36 months. This company is basically into two businesses. One is the alloy steel business, which is a loss-making business and the second is stamping business, which is a profitable business. Because of alloy steel’s drag on the bottom-line, the profits made by the stamping business were never reflected in the net figures that the company used to disclose. For the last three-four years, the company has been posting very nominal profit or losses. Six months back, the management decided to hive-off this alloy steel business into 100 percent subsidiary called Navyug Steel and then it offered 49 percent stake in this Navyug Steel to Sanyo Steel, which is a world renowned specialty steel manufacturer of Japan and 20 percent stake to Mitsui & Corporation. 49 percent stake was offered to these two Japanese players. Now Mitsui & Co is a comprehensive global trading partner across the world. It is a very good in this trading business. By doing this, the company has achieved three things. One is that, it got Rs 218 crore cash in to the loss-making alloy steel business and with this Rs 218 crore, it is planning to double its capacity of alloy steel from 1,20,000 tonne to 2,40,000 tonne over the next 18 months. The second thing is that it got Sanyo Steel and the management is talking about a complete re-vamp of this business. Henceforth, Mahindra Ugine will be called a super-specialty steel manufacturing company and not an alloy steel company. The third thing is that by getting into Mitsui, it will have no problems in marketing its additional 1,20,000 tonne of steel in the global market. That is one interesting thing which has happened. Coming to the stamping business, it is a highly profitable business. It has got about 3-4 units and it is currently operating at about 100 percent capacity. In fact, it has got so many orders that it has decided to put a new stamping plant in the southern part of the country to cater to Tata Motors and Ashok Leyland. Stamping should do very well. In fact, in stamping business we expect the net profit margin to be at least about 3 percent. Next year, it will be a Rs 1,000 crore business. So, we are expecting at least Rs 30 crore net profit in stamping business which will result into the earnings per share (EPS) going upto Rs 10. Because of the alloy steel business posting loss, next year would not be that good. However, FY15, we expect the alloy steel business to turnaround. That is what the management is talking about turning around in 18-24 months.
So when in FY15, the alloy steel business turns around and Mahindra’s stamping business post a profit of Rs 32 crore, which is very much possible, the EPS could go upto Rs 10. Around Rs 10 EPS, this subsidiary of Mahindra & Mahindra (M&M) should easily go to about Rs 120-130 levels. With very low downside, the upside is very high. We all know that M&M and Tata Motors are very aggressive right now. There is a huge pipeline of new products to be introduced once the auto market revives as far as M&M is concerned. I think it will have no problem marketing its stamping products. Great opportunity lies in this company. Disclosures: We own Mahindra Ugine but we do not own Navneet Publications.