Multibaggers: Tater picks Andhra Bank, Styrolution ABS

In an interview to CNBC-TV18, Aashish Tater, head of Research, Fortunewizard.com picks Andhra Bank and Styrolution ABS as his multibaggers. He believes both these stocks will fetch multifold returns with 12 months perspective.

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Below is his analysis of the stocks on CNBC-TV18 On Andhra Bank We are reviewing our PSU banking sell calls and now almost all the negatives have been factored in the prices at least. If we take a snapshot of last three years for any PSU bank in the midcap space, maximum of them have formed a W pattern which indicates a buy call for stocks that we are actually having a negative review for almost last six months. If we take a call on Andhra Bank, around January quarter when the result came out, it use to hover around Rs 110-112 where we downgraded the stock to Rs 89. Now at current price of Rs 80 and with all the negatives factored in, this is one stock that will again give you return of almost 25-27 percent if you have a holding capacity of one year. But if you can combine the power of Options, the return could be as high as 48 percent for over next one year. Apart from the returns, market has potential to give the safety net. You are getting a dividend yield stock of 6.5 percent on this. There is still some dividend, so around Rs 82-83 you are getting Rs 5 dividend due on 15 July this month. If you take a 14 month view from here, you are going to get two dividends of Rs 5 each that is Rs 10. So, you will make Rs 10 straightaway which is tax free from next 14 months perspective. Secondly, last time when government actually converted the share, it was around Rs 157. The price to book value right now is roughly around 0.56 times. Last time Rs 157 conversion gave the adjusted book value to Rs 150 and the current price is Rs 82 come dividend. So 0.56 times is the lower quartile that we always look for investing into PSU banking space and that fits the bill. Thirdly, you can easily combine this stock with Options which means you can buy Put and sell Calls depending upon scenarios and patterns that have been built. So if you can combine all these three, we expect you to make 50 percent from current levels. According to another government report, Coal India would be looking to infuse capital in four priority banks like Dena Bank and also Andhra Bank. If that happens, the infusion will be roughly around the agriculture portfolio of Andhra Pradesh estate given that election is due next year. So if that adjustment comes in, 6-7 percent dilution will happen at Rs 12 and that will have a sentimental impact. Combining all these factors, there is hardly any downside because you are getting 6.5-7 percent in terms of tax free returns in the form of dividend. The stock also has the tendency to move from Rs 80 to Rs 120 on a broader range. For last three years, this has been the pattern and now with valuations coming in because all the larger non-performing assets (NPA) accounts have already been factored in. There are a couple of surprises that we could see in terms of NPA recovery. So even if asset quality increases minutely, the NPA of 2.43 comes to around Rs 2.25 in next two quarters, the stock will easily give you 20 percent return in that particular series itself. Therefore, all these factors are a thumps up for the stock from medium to long term perspective. On Styrolution ABS Styrolution ABS is a new name for Ineos ABS and that is one stock that market has forgotten. With renewed interest now, this space can again be looked upon. Last time when we recommended this stock we had a target of Rs 800-900 if the open offer comes. The stock made a high of Rs 800 and spent a lot of time between Rs 750-800. We got stopped out somewhere around Rs 700 after Rs 750 crash. Now with offer-for-sale actually getting absorbed around Rs 400, there has been a huge interest in terms of buy signal. The pattern suggests what has happened to a pharma based company that offered at Rs 90 and then there was an open offer at Rs 130. A similar pattern is not 100 percent sure, but at current valuations there is hardly any downside. An MNC company with a parentage of Styrolution ABS GmbH, we do not see any downside risk in this stock because it is available at a P/E of just 10 times. Historically and even from foreign parent perspective, the stock should trade 15-16 P/E multiple forward. So if someone has a timeframe of next one year or 15 months this is one stock that can definitely give you 50 percent return from here on. If you see the business of this particular company, still there has been import parity for the company substitutes. So you will get a growth story, you are getting an MNC stock at a 10 P/E multiple, you are getting it at historically low valuation of last four years plus the offer for sale handover has gone away from the stock. Looking at the shareholding pattern, on June 24 when the offer for sale shifting happened at Rs 400, foreign institutional investors (FIIs) have taken up that large chunk. Also, public float has also got squeezed which means there has been double squeezing in terms of public float. No open offer of 75 percent, but still Rs 600 is what is on a comfortable zone for this particular stock once market sentiment improves. Limited downside from current levels, so given all these factors, this is the right time to go on these kind of MNC stocks where lot of money can be made from next 12-15 months perspective. Disclosure: Tater does not have holdings in any of the stocks discussed