Aashish Tater's multibaggers: Bank of India, GSPL

Aashish Tater, Head of Research, Fortunewizard.com, is picking Bank of India and GSPL as his multi-baggers of the day.

Below is the edited transcript of Aashish Tater’s interview with CNBC-TV18
On Bank of India
Post our downgrade right from the Rs 340 odd mark, it has corrected almost 33-34 percent, a loss of Rs 110. Now, what we feel for the entire banking space, especially, for the public sector undertaking (PSU) banks, they all are trading at our comfort zone of less than 0.7 price to book value. We rely on this particular quant model which suggests that the weighted average is around 0.7-0.8 on price to book value levels after adjusting for non performing assets (NPA) and other risks in the market and the stock tends to go minus 20 percent or plus 20 percent on either side. Also Read: SP Tulsian's multibaggers: Atul Auto, Autoline Industries
Right now, it is trading at the lower end of our comfort zone. So this is one stock where we feel a likely sharp short covering rally that can give you 20-22 percent return in a very short span of time of three-four months, which will actually see the stock going to test Rs 278-280 odd mark where it has fallen, the last candle being very sharp - that 15 percent that you are talking about. Now take a call from two perspectives. In next six months, even if RBI goes and cuts two 50 basis points in terms of combination of cash reserve ratio (CRR), repo and reverse repo, what will happen is the entire banking PSU will go on fire and there will be list of upgrades that will happen.
On valuation zone, it is still available at 5 percent roughly in terms of dividend yield. It has gone exuberant very recently. So from that perspective also it is very lucrative if someone wants to take a call. You can always hedge this particular asset whenever you feel there is a risk in the system and thus buying puts, which are relatively liquid and also by writing high level calls, which will give you 2-2.5 percent month on month returns because what we feel is that come plus/minus 5 percent, the stock will stabilise around current levels and likely test Rs 270 in the next three-four months, with options hedging you can make substantial return from current levels. So this is more of a quant call rather than a long-term strategy that we are putting into something like Bank of India or even for that matter Dena Bank and UCO Bank where we feel now the valuations are relatively comfortable and can be looked upon from short term to medium term perspective.
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On GSPL
If you see the entire oil and gas space, we have been tracking the international movement in the space even from the domestic front, there is news that gas prices are likely to be increased and will go in favour of the company. What will happen is that they will get a relatively safe margin net where they have got adjustment going on. If you see the last quarter results then 0.95 standard cubic meters (SCM) margin has gone up to 1.04, despite that PNGRB issue and overhang on stocks like Petronet, GSPL and IGL, though GSPL is not directly related to PNGRB issue, but it has been battered down severely.
When we ran the quant model, we found very interesting aspects. The stock is trading at the lowest PE multiple of historical times and weighted average is almost 80 percent higher from current levels. So, if sentiment in the space improves, you get the weighted average again in terms of price handling multiples, you make almost 80 percent from current levels. What is interesting is the bigger story. IGL has been able to hike Rs 2 of gas prices because of the currency situation that we are in. We feel another Rs 3-4 hike is likely.
What will happen is similar situations will happen across the country and these margins would expand even for something like GSPL where the transmissions will get a small amount of the entire network tariff, which will get adjusted and we feel 1.15-1.20, which is roughly 15-16 percent of higher realisations from last year and will fetch a very good return in terms of earnings per share (EPS) because when we look at reports, the worst case EPS estimate is around Rs 10.50 for next year and if it goes and tests Rs 11.50-12, based on this expectations that we are working on given that there is a lot of development in the gas space, we feel the stock even trades at 8-8.5 times price earning multiple, giving you an easy valuation of nothing less than Rs 80 from medium to long term perspective. Another important aspect is that at current valuations, we do not see even a 10 percent downside on weighted average basis over the next three months.
So on risk reward basis, if you are trying to look at something into midcap F&O space, we feel these are safer bets where you can easily hedge your portfolio and also take good returns if market momentum shifts on upside, based on certain expectations of news flow across the sectors that we have discussed of.