Apar Ind top pick, like Westlife Development: Rahul Arora

Rahul Arora of Nirmal Bang Institutional Equities told CNBC-TV18, "We are very positive on Apar Industries and Westlife Development. We have been very positive on the urban discretionary for some time now, since December of last year. For Westlife Development, the franchise is fantastic, so Westlife basically covers the West and Southern part of McDonalds in India, they have about 200 stores. We think this business could essentially be 5X over the next 10 years. The potential for McDonalds to have 1,000 stores in India is far more than Dominos. The price points are lower, you can’t look at this stock on a price-to-equity (PE) basis because it was a loss making company." "I can give you various examples in large cap companies or even midcaps like Crompton Greaves or Bajaj Electricals where you see a loss-making business that goes into a profit and then market likes that. There is no point looking at a discretionary stock if you want to look at it from a six months to a year or even a two year horizon. If you can hold this stock for two to three years, it could give you 70-80 percent kind of returns. It would on our numbers on FY’18 be trading at 30 times. By no means am I suggesting that it is cheap, it is expensive but as Warren Buffet once said, 'A great business will not come at cheap prices' and in a strange sort of way, most of the stocks that we like are expensive stocks but the fact with the margin expansion we are expecting it to be very huge. It has huge operating leverage," he said."Delivery is something that they want to take up to 20 percent and when you hike your delivery, your return on capital employed goes up that much more. It is a very interesting part of the business. If you have gone through any of the ones recently in various tier-II and tier-III cities, it is trying to open drive-throughs as well. So, it is a great story from a return on capital employed perspective with very strong inherent business fundamentals, very strong supply chain. Don’t look at valuations on this because once you start getting the earnings in FY’17-18, the valuations will take care of itself. Something like Just Dial when we used to speak about a year and a half back." "The conventional business that Apaar Industries have been doing on cables has been coming down. They are getting into elastometrics and optical fibre cables. This is a company we think, over the next two years, could give you about a Rs 150 crore worth of free cashflow. It has got very strong return ratio profile expectations over the next two years. Infact we expect the return on equity (ROE) and return on capital employed (ROCE) of this company to go up by 500-600 basis points over the next two years. It is one of the few companies that is giving you the return ratio profile at an under 10 PE. You will have to really hunt the market for that."He further said, "If you are ready to hold on to this stock, you will still probably get 30-35 percent returns from here. It is one of our top picks in the capital goods sector, we also like Triveni Turbine and TD Power Systems."Disclosure: None of my analysts nor me nor my firms or associate firms hold any stake in these companies. We have just recommended them to clients.