Rahul Arora positive on TD Power, Lakshmi Machine Works

Rahul Arora, CEO at Nirmal Bang Institutional Equities told CNBC-TV18, "TD Power Systems is very similar to Triveni Turbine. It is a product company though the time to make its products is a little lower than Triveni. It has three very good tie-ups on the hydro side. Basically it is a generator manufacturing company and by FY17 it will be generating 85 percent of its revenues and 95 percent of its EBITDA from generators. In generators, for hydro it has a tie-up with Voith Hydro and it has global tie-ups with Siemens and GE as well. The order book of this company is very strong. In fact both on Triveni as well as on TD Power Systems the game is on the export side because the margins for both are in excess of 40-45 percent."

"In Triveni they do after market sales also where the margins are as high as 30-35 percent whereas in the case of TD Power Systems, this is a company which my analysts think that the return on invested capital could go up by 10-11 percent over the next two to three years. The EBITDA margin which is currently at about 4 percent will expand to about 11-12 percent. So, there is a huge operating leverage that this company has; again a product company but something that we really love. The upside on the stock is about 55-60 percent," he said.

"We like Lakshmi Machine Works. It has a 60 percent market share in textile machineries. It is looking to add about seven to eight million spindles over the next three to four years. With a 60 percent market share, debt free company, we are looking at very strong numbers. We are expecting the return on invested capital (ROIC) of the company to go up by 10 percent over a two year period. So, we are very positive on both the stocks. After the results, on current price, it will probably be like a 25-30 percent of an upside."

Disclosure: Analyst has no personal holdings, none of his analysts or associate firms hold more than 1 percent in any of the names