Tater's multibaggers: Zodiac Clothing, McDowell Holdings

In an interview with CNBC-TV18 Aashish Tater, head of research, Fort Share Broking picked Zodiac Clothing and McDowell Holdings as multibaggers. He sees these stocks having the potential to fetch better returns going ahead.

He suggests playing Zodiac from medium-term perspective with a target of Rs 225-240. "This target is reasonable from next six months perspective. It has tremendous upside potential from next two-three years perspective. This is a stock with limited downside," he added. McDowell Holdings is expected to stabilize at Rs 85-90, but, it can touch Rs 115 going ahead. "A base shift from Rs 60-85 is roughly 40%, which is a decent upside from next six months perspective," he added. Below is the edited transcript of Tater’s interview with CNBC-TV18. On Zodiac Clothing A: This is a short-term investment pick which can stabilize at higher levels from current prices. Zodiac should be played from medium-term perspective with a target of Rs 225-240. This target is reasonable from next six months perspective. The company owns almost 2 million shares. It has roughly around 18 lakh shares of Shoppers Stop itself which values around Rs 75 crore and few other investments, which totals around Rs 85 crore at current market price. It also has some mutual funds. If this is knocked out from debt and the market cap, the net value for shareholder is approximately Rs 300 crore. Given the brand equity of the company, this looks a very reasonable price compared to Provogue or some large players. Given the deals that have happened into retail, the stock deserves one time plus market cap to sales ratio on adjusted basis. So, there is a chance of at least 30% upside from current levels given that the company would do close to Rs 450 crore odd in terms of sales for this year. They have been very smart in terms of positioning. They have taken strong decisions of even closing down their stores in areas where they have not been profitable. They cater to the middle class from lower to upper segment. Their shirts fall in the range of Rs 750-5,000. If this plays out well, this stock has tremendous upside potential from next two-three years perspective. This is a stock with limited downside.
On McDowell Holdings A: We had recommended United Breweries and United Spirits. Then we felt that the momentum is shifting into the lower space, so we picked up United Breweries. Now, given the run up in these, we feel McDowell Holdings is relatively undervalued to the holding discount of the same group. It roughly has a market cap of Rs 85-90 crore odd, but it owns United Breweries Limited 4% stake, which roughly works out to be Rs 650 crore odd. If the deal happens, then they would fetch at least 4-5 times of their current market cap. The time factor is the only question mark.
If the time factor is taken as a discount, the market cap should be somewhere around Rs 150-170 crore given that the deal will happen at Rs 600 plus for United Breweries.  Apart from that, they hold United Breweries Holdings and Mangalore Chemicals. We are ignoring that fact as part of residual value. At Rs 150-160 crore there is a clear cut arbitrage for shareholders of United Breweries Limited. So, a small allocation should be done into this particular stock. The stock can stabilize at Rs 85-90, but because of the momentum, it can touch Rs 115. A base shift from Rs 60-85 is roughly 40%, which is a decent upside from next six months perspective. Disclosure: I have no personal holdings in any of the stocks discussed.