In an interview to CNBC-TV18, G Chokkalingam, Founder & MD of Equinomics Research & Advisory discussed fundamentals of the market and shared outlook on his top picks.Below is the verbatim transcript of G Chokkalingam's interview to Reema Tendullar & Prashant Nair.Prashant: Which stocks are on the top of your mind?
A: I would like to present three ideas. One is Polaris Consulting & Services is attractively valued and on one year forward earning it is trading at around 9 PE. We saw the new management talking about the remote possibility after even delisting and the same management took over the company at a price of Rs 220 per share, so right now it is trading at Rs 182 where the enterprise value to annual sales is also less than one time, most deals have happened around 1.5 times enterprise value to annual sales, so there is a lot of valuation comfort. However, I firmly believe that new promoter, if at all they want to delist, it would be fair to expect around Rs 220 per share as offer prices because that was the price at which they got the company. Therefore, I believe that it can reach Rs 220 target price.
The second stock is LG Balakrishnan and Brothers. The stock has corrected 17 percent from the peak mainly because December quarterly result was impacted by demonetisation. It is basically into transmission chain, largely catering to two-wheeler segment and two-wheeler sales were terribly down in December quarter and that has impacted the company but otherwise it has strong management, good balance sheet and it got good technology for transmission chains and recently expanded the capacity. However, I firmly believe that the company can go global; in the recent past they acquired some unit of foreign company, so it gives a lot of comfort and it can even double in one-three year but conservatively it can give anywhere around Rs 700.
The third stock is Nagarjuna Fertilisers and Chemicals, but I will tell investor to have passion to make money in this counter because it is making marginal losses. In December quarter it made Rs 20 crore loss. It is making profit at operating level. Their great attractions are two - 1) enterprise value is around Rs 2,400 crore whereas for 15 lakh urea capacity the replacement value will be anywhere around Rs 5,500 crore and 2) Zuari Group, which is a competitor, has taken 5 percent stake in this company. The same they did in Mangalore Chemicals and Fertilisers a few years ago; they started with a small stake and then acquired the company. In the process that stock gave even three times return.
However, in Nagarjuna Fertilisers, which is a gas based urea company, the enterprise value is a great attraction and also in the last 20 years in the country, hardly there was any major greenfield project in urea space and in the interest of the nation also we have to encourage the existing plans to get better gas availability and improve the output. So considering these facts, I would suggest exclusively for long-term investors to look at Nagarjuna Fertilisers with one-three year time perspective.Reema: There is a lot of interest in telecom stocks right now. Bharati acquired Telenor, there is an impending merger of Idea Cellular and Vodafone, Reliance Industries shot up yesterday because of an expected improvement in the financials of Jio. Anything there which looks attractive to you right now?
A: I would use this opportunity to sell Idea and Bharti Airtel. My firm view is that Jio would pull down the margin for the existing players. Those who are holding Reliance can hold it because between Rs 1,250 and Rs 1,300 could be a short-term target but otherwise I would certainly use this opportunity to sell Bharti Airtel and Idea because the penetration has peaked out in telecom space and competition will be very intense, so there would be a lot of pressure on these existing players. Therefore, I would sell these two stocks.
Prashant: Nagarjuna Fertilisers has been down for 12 days, anything going on there?
A: It's because December result was beyond expectation. They made a minor loss of around Rs 20 crore and that's the reason otherwise the book value for the company is around Rs 18. As I mentioned I have been tracking fertiliser industry intensively for two decades.
Today, if India has to go for import of urea or phosphatic fertilisers, the prices always shoot-up. In the last two decades the cultivable land has come down in absolute term whereas the food grain production has gone up substantially, almost doubled in the last 30 years primarily on account of productivity gain which has come in terms of larger application of fertiliser. So there is a strong case for maximising the output from all the existing players including Nagarjuna.
However, as I mentioned Zuari has taken 5 percent stake in the company - that also gives great tactical opportunity, in fact two years back there were two-three public sector undertaking (PSUs) which proposed to setup 12 lakh tonne of urea capacity at a cost of over 5,200 crore whereas Nagarjuna has got 15 lakh tonne capacity and enterprise value is less than Rs 2,500 crore. In short-term it may not give but in two-three years perspective it can become a multibagger.
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