Multibagger ideas: Aashish Tater's 2 long-term picks

Aashish Tater, head of research, Fort Share Broking has picked up Edelweiss and Hind Rectifiers as his multibaggers for the day.

Houseviews: Brokerage tips to trade Marico, eClerx, L&T & RComm Below is the edited transcript of his interview with CNBC-TV18's Sonia Shenoy and Latha Venkatesh. Q: Why have you picked up Edelweiss? A: There is a lot of flavour into the insurance sector. It is one asset that Edelweiss owns. It is very small right now, but has potential to become a very huge asset, given that the balance sheet is roughly Rs 2,500 crore. Revenue, right now, from insurance business is just Rs 100 crore. But it has a potential to grow exponentially on a CAGR of atleast 35-40 percent, expecting a 60-70 percent jump for next two years and then 35-40 percent for atleast five-six years. The company’s marketcap is around Rs 2,200-2,300 crore. Insurance companies have been valued roughly at Rs 7,000-8,000 crore with six to seven years of operational expertise. Edelweiss is in Tokyo. It is in their second or third year of operation. In the next three-four years, if their valuation jumps to even close to USD 500-700 million and since this company owns 74 percent, the asset itself would be worth much higher than current levels. Secondly, if you see the increasing volumes in the equity market recently, as a broking business we feel Edelweiss would definitely benefit because they are among the top quartile brokers that we look from investment perspective. Thirdly, they have a strong balance sheet. Given the entire reversal, because we have been looking into patterns, which has given us tremendous returns of almost three-four times and even 10 times, a particular W is made with channel upward breach. When we combine these fundamentals facts, we find there are stories that will give us tremendous returns, if someone holds even from longer term perspective. In the short-term, insurance in FDI and large volumes traction are going to definitely benefit. Also, if you see in the last one year the private equity deals in the investment banking space, the Axis-Enam deal and few others in the international space, we feel this particular company has got assets that would attract large players. That’s why we feel the valuation right now is atleast 30-40 percent less than what it can deserve, if there is good momentum going forward. Now, the time has come to make smart moves in the smallcap and midcap space. What’s why we have picked stocks where there could be very good momentum, given the upward momentum in the midcaps to continue from current levels. _PAGEBREAK_ Q: What about Hind Rectifiers? A: Hind Rectifiers has been into a choppy business. This entire sector has not been able to give or generate returns in this particular space. But now the momentum has sifted to transformer power businesses. Given that this is just a Rs 70 odd crore market cap company with a dividend yield of almost 4-4.5 percent, there is hardly anything to lose at current levels. People, who are feeling missed out, can park some funds in this particular stock itself. They own roughly four plants, two in Dehradun. They are getting operationally to almost 100 percent capacity. The promoters are looking to gather further funds to fund their expansion. It is a low-debt company with almost Rs 10-12 crore of debt. That’s another comfortable position for this particular player in the space. If they shift their plant from Bhandup, Mumbai to Dehradun facility, they will get roughly around Rs 70 odd crore in terms of cash flow post tax. That will actually give them momentum to push for further expansion. This will happen in the next 12-18 months. Given this particular fact, the top-line would jump to over Rs 225 crore from the next two years perspective. We are roughly working around Rs 140 crore of sales for this year and Rs 167-175 crore for the next year. So, in three years, we feel that the stock would go and stabilise somewhere around Rs 95-102. That’s the range that we feel one should go and book profit because we are working with an EPS of close to Rs 8.5 for this year. With the asset actually coming into the balance sheet, in terms of cash, we feel there would be a special income of almost Rs 30 in terms of extraordinary income. That will be used for expansion. We feel the stock should stabilise somewhere around that levels from the next two years perspective. So, it is almost a double from current levels, if someone holds for 24 months. Disclosure: It is safe to assume that the stocks discussed have been recommended to clients.