Tater bullish on Punjab and Sind, Aurobindo Pharma

In an interview to CNBC-TV18, Aashish Tater, Head of Research at Fortunewizard.com recommends Punjab and Sind Bank and Aurobindo Pharma as multibagger stocks.

Below is an edited transcript of Tater's interview on CNBC-TV18.

On Punjab and Sind Bank

We are looking at one particular ratio that is helping us to pick stocks which could be future outperformers in the banking sector. We picked Karnataka Bank on a rationale of price-to-book value and now it has rewarded with handsome returns of almost 60-70 percent in recent times. For Punjab and Sind Bank we like the per branch valuation given its maximum branches, almost 90 percent plus are not into Core Banking System (CBS) technology and still the bank has been able to do quite well given the fundamentals.

The bank is going for a transformation and there would be a lot of potential in days to come. At a price-to-book value of 0.45 times, I will not be able to find another stock from long-term perspective, because even during tough times except 2008 session, the worst that the bank trades is at a an average of 0.7 times price-to-book value on doom days. On good situations where the fundamentals are actually supporting the midcap and small cap banks trade at roughly 0.95 price-to-book value.

There is lot of potential in this particular stock at Rs 65-70 zone, given that the book value is roughly around Rs 140. What is also interesting is the way the NPA has shaped out for this particular bank. We feel the worst is almost over for banks like United Bank, Vijaya Bank and also Punjab and Sind Bank. From this angle the very first thing comforting us is the valuation on downside which will definitely be protected.

Secondly, there is hardly any free float left into the market. 78 percent is owned by President of India because it is a PSU, 8.5 percent is owned by three large institutions including LIC and 4-5 percent of the total float is controlled by strong hands. The way our projectors are working on it, with a target of Rs 100 from short-term perspective. At Rs 125 the stock would be fully priced, almost 80-90 percent upside even from current levels. Someone who has a horizon for a year or so, will be handsomely rewarded from current levels with limited downside.

On Aurobindo Pharma

We have been covering this stock even when it hovered at around Rs 900, which was Rs 10 paid up and even at Rs 110 recently, the stock has given you almost 80 percent return. If someone has two-three years perspective he will be handsomely rewarded. Whenever we pick a pharma stock,we project three things which help us find stocks like Strides Arcolab, Wockhardt, Cipla at much lower valuations than what it is trading now and Aurobindo Pharma also fits the space.  This is due to the market cap-to-sales ratio. It is available at a market cap of Rs 5,500 crore and an adjusted enterprise value would be somewhere around 1.45 times to its sales. So if I play a reciprocal model and reverse maths model on this particular stock given the global peers, the stocks should trade at 2.6 times at least.

From one year perspective, we see a 50 percent upside from this particular parameter. We are also banking on this because of the Unit 4 Food and Drug Administration (USFDA) approval which we feel would come very shortly and is going to be a major trigger. That will give a revenue guidance of almost 30 percent YoY jump. Its product portfolio will be able to expand its operating bps by another 300-400 bps, which will again rerate the stock and from that angle the stock goes to Rs 250-255 zone.

Thirdly, it has formed at Rs 155 and the shorts got squeezed. With this particular news and rerating on market cap-to-sales ratio we feel the conservative target from next one year perspective would be somewhere around Rs 300. Given, we are long-term player in stocks like Aurobindo, Wockhardt we feel these stocks would give you at least 200-300 percent return if someone has potential of three to four years.

If you see the Abbreviated New Drug Application (ANDA) approvals of the company, 162 total approvals of which 146 have already been transformed. So, there is lot of potential that the company would be able to gain momentum and once the operating expansion happens the stock would be trading at less than 6 PE multiple. Given the average PE multiple for maximum stocks is 14-15 times, there is a huge rerating which is underlying this particular stock and the stock from two years perspective, we have a target of Rs 450 and for one year Rs 300.

Disclosure: Safe to assume the stocks discussed have been recommended to clients