In a CNBC-TV18 special show '18 for 18', Mehraboon Irani of Gini Gems Consultants gave five top ideas for 2018.
Below is the verbatim transcript of the interview.
Nigel: You are looking at a stock, Asian Granito India. I remember the stock at around Rs 50 a few years ago. Then it had a big run. Promoters bought from the open market as well towards the end of last year. Trades at a bit of a discount to larger peers. You think that is good?
Irani: This is a stock recommended earlier by me and it never made me think more than a minute to take a call that this is also a stock which I would like to be loyal to and believe that this stock should be at least a Rs 750-800 over the next 12 months. Asian Granito, let us look at it. It is the third most profitable tile company in India and it is the fourth largest in terms of turnover because in turnover, Johnson Tiles is ahead of it.
The company has achieved this, worked very hard over the last 2-3 years, has reaped economies of scale, has merged various subsidiaries. It has concentrated on introducing new products, has concentrated on high margin products expanded into new geographies, expanded its dealer network and worked on enhancing its brand presence. Earnings per share of Rs 13? 2016-2017, Rs 13? Why should the stock be at Rs 530-540? The reason is, I believe the company should report compounded annual growth rate (CAGR) growth of at least 40 percent over the next 2-3 years. I will not be surprised if the company has earnings per share of around Rs 35-40 by 2020. Now what valuation do you give? 20? The price is Rs 800. At 35, the price is 700. The stock is right now Rs 520.
I do believe that yes, as and when the market has suffers a minor accident, the stock should correct 5-10 percent. So what? As long as I see a price of Rs 700-800, why should I bother about a 5-10 percent correction? Because, people have been waiting for a correction for quite some time and the stock has run away like you rightly said. So at Rs 525-545, if I see a price of Rs 750-800 which is my target, I think I am investor in this stock.
Nigel: You have got a chemical company that you are looking at and when I was growing up I used to watch lot of CNBC-TV18 and a couple of factors one is promoters increasing stake and if it has a clean balance sheet those two factors always stood out from the simplest investing point of view. What is the pick you have next?
Irani: I think you have worked already on this company and I would say that I am very gung-ho on this stock. The company’s names is Fineotex Chemical which is also known as FCL. Let us put it this way the company is one of India’s largest textile chemical manufacturer which provides customised solutions to the entire gamut of activities in the textile sector. It services a customer base which is in a way sticky, it doesn’t move to any other chemical manufacturer so easily. It has a high pricing power, there were higher margins. It has got its manufacturing facilities in Navi Mumbai and also a subsidiary called Biotex in Malaysia where the company has got 68 percent stake. It is a Star Export House has presence in 33 countries and what you rightly said balance sheet absolutely clean.
Rs 22 crore equity, Rs 11 crore shares because it is Rs 2 face value, zero debt, consistent dividend paying company. Earnings per share of around Rs 1.80 of last year should at least become to Rs 2.50 this year and should move to Rs 3.50 to 4 next year. This is without one major trigger which I am coming to I think early this month in the very same place Bombay Stock Exchange the company was rewarded as the fasted growing chemical manufacturer in India. Now the company has developed a product in Malaysia using European design engineering which is styled as Aquastrike VCF.
Let me explain to you what is Aquastrike VCF is? This is an environment friendly non-toxic revolutionary solution which doesn’t kill mosquitoes alone but kills the larvae and the pupae of mosquitoes. Completely eradicates mosquitoes. The ministry of health in Malaysia’s has already given it a go ahead. It can be used by common citizens like you and me directly. It is a non-pesticides, not poisonous to humans and they have already effected sales in Singapore and Malaysia. The company has applied for patent and has also applied to the WHO and the numbers as far as the financials goes which I have mentioned is without taking into account any sales from this product. But I believe this product has a potential to deliver business of billions of dollars in the years to come for this company.
Rs 22 crore equity, again I repeat with zero debt, promoters have increased their stake from 62 percent to 72 percent over the last four years. They declared a bonus issue in 2014-2015 and have reserves of over Rs 100 crore on an equity of Rs 22 crore. I think with an earnings of Rs 2.50 coming in the current year which can go to Rs 3.8 as I rightly mentioned the stock at Rs 50-52 is a clear steal and I think a price of Rs 80 to even Rs 125 can come over the next 12 months.
Surabhi: Your next pick is Edelweiss. Now already up 200 percent, so I want to understand what do you think is the biggest driving factor. Is it simply a growth play?
Irani: I think it has been very consistently positive on Edelweiss. I think CNBC was a channel where I had recommended first time at maybe around Rs 120. Rs 120 became Rs 300. A colleague in the office told me, you are being greedy by recommending this stock all over again. I said yes, bond yields at the level at which they are, inflation could become a dirty word, at least in the first half of 2018, interest rates possibly the cycle could turn. Should I actually recommend Edelweiss? My answer was 100 percent yes.
Can the stock came down by 10-15 percent? Certainly, yes. But will it be a Rs 450 stock which is my target over the next 12 months? My answer is again yes. So I think Rs 290 becoming Rs 450 is happening, it will happen. Edelweiss is not the small player in the capitals market segment which it was years ago. It has evolved itself. It has gone into lending business, started with wholesale lending, now into retail lending where it is meeting with a lot of traction.
Point number two, it is into asset management business, wealth management business, but the biggest trigger is the stressed asset business where the company is number one by a big distance over the number two and number three player. As far as insurance business goes, I think the losses should peak out over the next 12 months and the biggest contributor apart from the asset reconstruction, stressed assets business over the next two years according to me could come from the wealth management business, the advisory business and the asset management business. Earning could show an exponential growth over the next 2-3 years. It is difficult to quantify it. Current year should be Rs 10 EPS which should possibly become maybe Rs 20 in the next two years, I do not rule it out.
So Rs 290 looking at it, like you rightly said, Rs 100 becomes Rs 290, should I buy into it. The answer is if it becomes Rs 450, why should I possibly bother of Rs 230-250 coming again. I would put it that way. It is very difficult to time stocks like Edelweiss which is showing exponential growth. So I will stick to it and recommend it as one of the best picks of mine for 2018 also.
Nigel: Sterlite Technologies, that is the one you like?
Irani: Again, consistently positive on this stock and the reason is that one can defend the valuations because the growth is going to keep on coming. I think it is a global leader, number one in telecommunication equipment which includes optic fibre, optic fibre cables, data cables. The company has operations mainly in India, China and Brazil, but has marketing network nearly across the world. Global demand continues to be robust from China which has 55 percent of market globally and also from Europe and US.
The company works on three platforms. Number one is the product, number two is the services and number three is the software vertical. The company, despite having made a lovely capacity expansion does not have any stress in the balance sheet with a debt equity less than 1. The company should be spending at least Rs 10 billion on further expanding capacity over the next 2-3 years and I promise you, I believe that the debt equity will become more comfortable despite spending that kind of money. The earnings this year should be Rs 8-9, but I will not be surprised is these earnings double over the next two years to Rs 17-20 by FY20. I believe that if one tries to look at the traditional EPS manner, Rs 7-8 going at Rs 290, stock looks expensive.
I believe the market will continue to give it a thumbs up which it has given in 2017 because of the growth which this company will report. Also, digital India, the favourite concept of our Prime Minister should bring in more and more orders coming from within the country also. So I think Sterlite is on a good wicket, again the stock, can it correct by 10 percent, who can stop it? You and I cannot stop it. But Rs 250-300, but I believe this stock has the potential to be Rs 450-500 stock over the next 12 months.
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