Here are a few top midcap picks by G Chokkalingam

In an interview to CNBC-TV18, G Chokkalingam, Founder & MD of Equinomics Research & Advisory shared his readings and outlook on specific stocks and sector.Below is the verbatim transcript of G Chokkalingam’s interview to Ekta Batra and Prashant Nair on CNBC-TV18.Ekta: What is your strategy on Balmer Lawrie and what is your target price as well? A: All of us know that the midcap index is at record high whether you take a midcap or smallcap. So, it is very difficult to find great ideas, let us be very frank about it and in fact the entire BSE market cap is around Rs 118 lakh crore which is at record high level although the BSE index is not reflecting that. So, therefore what I have done is, I have revisited two of my old ideas, which is Balmer Lawrie and MOIL. Both I firmly believe that the government would ultimately put out these companies for sale. We have already seen strategic sale proposal in BEML and then yesterday we saw it in Dredging Corporation. As compared to those two companies, Balmer Lawrie and MOIL have got great assets. Balmer Lawrie is around 150 year old. After touching about Rs 1,100 bonus, the stock has come down by almost 25 percent now. This company which is primarily engaged in logistic services and logistic infra, going for substantial expansion. The management also highlighted that they are planning to double the turnover by FY21 and they increase the capex on logistic infra particularly like warehousing and container freight stations. Therefore, I am quite bullish on this stock. Second is MOIL, the stock has corrected around 25 percent after two months in a subsequent period the management has cut down the manganese ore prices. So, the market became nervous and the stock got punished. However, the fact is that MOIL prior to this, increased the prices five consequent months continuously. So, even after adjusting for the downward revision of prices in the last two months, still manganese ore prices depending upon the grid and types, they are up anywhere from 40 percent to as much as even 100 percent. Now, the company has done a buyback, still it has got Rs 2,000 crore of cash and it has got 81 million tonne of reserves, 10 mines basically in two states in the country. I believe that as and when strategic sale happens, this can be a multi-bagger. Otherwise quite easily it can give 25-30 percent return, so, therefore these two old picks I reiterate now. Prashant: In terms of valuations, etc. again that cash story comes back, right?A: Yes, definitely, Rs 2,000 crore of hard cash is there after the buyback and secondly, very interestingly, the buyback only the government has participated. They bought back the government shares, and the capital also has now come down by almost 25 percent. So, on reduced capital, with price rise of anywhere from 40 percent to almost 100 percent in manganese ore, I am sure, going ahead in next two-three quarters you will see phenomenal results. We all know the story of Hindustan Zinc which was divested by the government, ultimately I believe that these companies would be divested and if it happens, it will be a phenomenal story. In fact 2010 itself the company came out with IPO at around price of Rs 400, so, too far to go around IPO price. As I said, 81 million tonne of reserves it has, so, if it is put out for complete sale, and some dynamic private entrepreneur takes over, then this can be a phenomenal story in making. Ekta: Just wanted your thoughts in terms of all the noise that has been doing the rounds when it comes to the Trump administration and the impact on IT companies. Has that changed your stand towards say any of the midcap IT stocks or anyone that you think would possibly weather the storm better than the others, any midcap IT picks that you have for us? A: I firmly believe that ultimately the US president would compromise on Indian IT sector. I have a strong conviction which is based on the fact that last five years there has been a political realignment involving India, US, and Japan, so therefore the political economic development would dictate ultimately the compromise on the stance of new president. However, the problems are there for large IT stocks. One, the Eurozone is not growing in a big way and US is also liking the consistency in growth; sometimes suddenly the GDP growth falls to less than 2 percent. Second problem for large IT companies is the base effect. Now, today on USD 108 billion it is very difficult to grow the IT export base in double digit, most unfortunate development is that in December quarter for the first time, the year-on-year growth in revenue, even in rupee term, has become single digit for most of these large IT companies. So, I am not bullish on large IT companies, but I believe this would lead to further consolidation in midcap IT space. So, therefore we continue to recommend Polaris and Mphasis. I firmly believe that there is a lot of opportunity for making money in these mid-sized IT companies which are cash rich and also there is a lot of valuation comfort. Prashant: Just run us through the last one, KCP that you have liked for a while. A: It is a very diversified company but primarily engaged in cement and sugar. Cement in Andhra and sugar in Vietnam. In the last two to three years, they have expanded the capacity of both cement and sugar in a big way and sugar business made Rs 78 crore profit in FY16, this year I am expecting about Rs 100 crore profit from sugar division alone. So, therefore, it looks very attractive. In fact it has got a huge land bank in Chennai as a part of engineering division which is making losses for quite some time now. So, there is a possibility of unlocking that land bank either in terms of sales or diversifying into logistic business. So, therefore I strongly recommend KCP.