Aashish Tater's multibaggers: Nocil & EMCO

In an interview to CNBC-TV18 Aashish Tater, Head of Research, Fortunewizard.com picked two multibagger stocks and shared his outlook on the same. He sees Nocil and EMCO having the potential to fetch better returns going ahead.

On Nocil
This could be a stock where you can get atleast 50-60 percent return from one year perspective. We have been working on quant models where the promoters try to accumulate the stock and then the story emerges.
The promoters have gone and accumulated this stock almost at 1.5 percent through Navin Fluorine International. What has happened in these 12 months is that the company was looking to expand its product capacity and they started a Greenfield expansion in Dahej for Rs 250 crore. More than almost Rs 150 crore has been invested. That, is the reason the company has gone and leveraged its balance sheet by Rs 100 crore.
There is a lot of market speculation on the fact that the company would eventually go and shift the entire plant from Navi Mumbai to Dahej. Previously, the stock entered into Board for Industrial and Financial Reconstruction (BIFR), and the company was able to come out of the woods. Now with the small land bank that the company is left with, we feel there could be very interesting pattern that is emerging.
Given the Dahej plant will stabilize, the company will do close to Rs 750 crore of topline next year. This will be a very good bet at Rs 250 crore of market cap which is roughly at 0.33 market cap to sales ratio.
Once the stabilization level comes, the company would report a PAT of Rs 50 crore. That will give you a price earnings multiple of 5.5-6 times. The company is into rubber chemical business. As the importance of this particular product is increasing and the brand of Nocil getting recognized, I think the stock is undervalued by 50 percent on fundamental aspect too.
The stock would give you atleast 50 percent return from current levels and the downside is definitely locked because the promoters are accumulating the stock at current levels.
On EMCO

EMCO could be a big turnaround story from next 18-24 months perspective. Last night the company reported an EPS of 12 paise. It is better to ignore the financials right now because the company does not have much order in its kitty right now.

 

But since 2006-07, the company promoters ventured out and bought mines in Indonesia. The company’s balance sheet is likely to get reduced because the promoters are looking to sell part of its acquisitions in the Indonesian coal mine. The entire chapter could again change, because on a reduced basis, the marketcap is roughly around Rs 180 crore with a sales of Rs 800 crore. So, it is a very attractive position from debt side.

 

The valuation of the Indonesian coal mine per share works out to be around Rs 78 and the net adjusted value, around 55 post debt. Once this particular cash comes in, the company will be able to pay its debt. With new transmission orders that we are forecasting for the company, the company will be on stream to report an EPS of Rs 7.

 

Given that transformer companies roughly trade at 8-10 times, these are likely possibilities that the stock can even test its level where the price to book right now, is around 0.3 times and the book value of the company is Rs 88.

 

By the time the company actually starts performing on the bottomline front, the stock could stabilise around Rs 55 levels because of the Indonesian coal asset sale which should materialize within next 8-12 months. This could be a good bet at current levels given there is hardly any downside.


The promoter holding last year reported was 38%, and now it is roughly around 43 percent through small acquisitions. The promoters are buying at around Rs 37-38 and right now the price is Rs 30. So, you are buying a stock where the promoter itself was acquiring around Rs 38 odd mark and you are acquiring at Rs 30 at 30 percent discount.

 

So under any circumstances, the promoters would be supporting the stock if the stock goes down from current levels. Also because of the story of the Indonesian coal mine, the stock has to see a lot of upside from current levels.

 

Given all these factors, we feel a part of your portfolio should be allocated from a longer term perspective on both the stocks for a return of almost 50-70 percent in NOCIL and almost 100 percent minimum in EMCO from current levels.

Disclosures: I have no holdings or interest in the stocks discussed.