Bet on Max India, State Bank of Travencore: Aashish Tater

Aashish Tater, head of Research, Fortunewizard.com is bullish on Max India and State Bank of Travancore (SBT).

For Max India, he sees exponential growth of over 40-50 percent for next 8-10 quarters and expects the stock to touch Rs 268. He finds the valuations of SBT attractive valuation and sees upside of 20-25 percent from current levels. Also Read: Market to be choppy; buy on dips, sell on rallies: Sukhani Below is the verbatim transcript of Aashish Tater’s interview on CNBC-TV18 On Max India Last time when we recommended Max India at around Rs 185, we said the stabilisation level would be around Rs 225 for this fiscal. The stock made a high of around Rs 265 and we advised to book around Rs 250. Now it has again come to the stabilisation level of Rs 212-215 where we have a target of Rs 225 for last fiscal. On trying to factor in growth for this particular year, we are factoring at least 20-22 percent return even for this fiscal which is taking the stabilisation levels at around Rs 268. When you talk about stabilisation levels, the stock tends to move a bit higher from that level and then corrects itself and finds a base around these levels. So on conservative side also, you are making a 26-27 percent growth. What will justify this fundamental shift even for next fiscal, Max is into five businesses of which three are promising even for next year where we feel a lot of money can be made. The life insurance business has been growing substantially. To compensate that, they have also catered into the health insurance Max Bupa Insurance which is just one-and-half year old business for them and is doing very well. Going forward, we expect a very good exponential growth of over 40-50 percent at least for next 8-10 quarters which will add onto the valuation aspect. Apart from this the company’s foray into healthcare business where they own around 68-70 percent values, the hospital business of 1,900 plus beds at least Rs 1,900 crore, given their stake that will roughly be Rs 1,500 crore. In case of Apollo Hospitals, Fortis and others, the valuations are getting rerated and are being adjusted around Rs 1.4-2.3 crore depending on the quality of hospital. So even if we add Rs 1.4 crore per bed, there is a possibility of a 30-40 percent upside in terms of valuation. It is a separate investment so we cannot factor in right now. If you consolidate, this market cap should be around at Rs 7,200 crore which gives us around Rs 268 for this particular stock from next 12 months perspective. Commenting on the results expected on May 29, we expect good set of numbers from this particular company. We expect the management to give a better guidance. The company gave an interim dividend of Rs 10 for this fiscal and we feel that will be handsomely rewarded by another 30 percent dividend payout of Rs 3 as final dividend for this stock. So, giving a Rs 13 dividend, which included a special dividend of Rs 8-10 due to hiving off a part of their insurance business.
On State Bank of Travancore (SBT) The logic is simple for State Bank of Bikaner and Jaipur (SBBJ) and SBT. For State Bank of India (SBI), it has made a beautiful pattern of Rs 2120 which will be a weighted average price for this fiscal. According to SBI chairman and the finance minister, there will be a possibility of mergers going through which will see PSU banks surviving from here on. The first step will be the merger of the three subsidiaries SBBJ, SBT being the prime players. If you take a call from price-to-book value adjustment, because it is a low floor stock the prices are right now trading at 0.5 times price-to-book value.
 
The models have suggested that even on the most conservative side, if you take something like Andhra Bank which is trading at 0.7 price to book adjusted, there is a 40 percent upside from valuation perspective for this particular stock. When we ran this particular model for State Bank of Indore merger with SBI, it gave an exchange ratio of 34 for 100 and SBI Indore has not been that lucrative subsidiary for the company and still they offered a 0.7 price-to-book value. Here the share holders will have a case where they can easily look for 26-28 percent upside once this development starts taking place. When we ran our quant model the predictors we felt there is an easy chance of 20 percent upside on any given day if the news gets stronger. That particular data, we look for, has been made for 12 months as well as 18 months which is showing a significant bottom base formation around current levels. You can easily expect a target of at least 23 percent from current levels in less than 12 months for this particular stock. From similar perspective, we recommended SBBJ. So when you try to align this kind of stock with something where there is a relatively risky weight, you can shift from those high risk PSU banks which are having lot of NPA issues to something like SBI subsidiaries which will compensate both in terms or risk reward and also the amount of risk you are taking per reward is very lucrative at current levels.