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Last Updated : Sep 22, 2016 03:25 PM IST | Source: CNBC-TV18

Top midcap bets from Ravi Kataria

In an interview to CNBC-TV18 Ravi Kataria, MD of Imperative Associates shared his reading and outlook on specific stocks.

In an interview to CNBC-TV18 Ravi Kataria, MD of Imperative Associates shared his reading and outlook on specific stocks.

Kataria is positive on cement and paper production. He recommends 26-27 percent upside on Tamil Nadu Newsprint and Papers Ltd (TNPL).

Below is the verbatim transcript of Ravi Kataria's interview to Prashant Nair and Reema Tendulkar on CNBC-TV18.

Reema: Let me straightaway get to one of your recommendations and that is TNPL. It is not just a paper company it also into cement. Take us through the reason why you like it?

A: We are positive on both the sectors cement and the paper production space that they are driving through. They have expanded the organic capacity by 50 percent in papers to 600,000 metric tonnes per annum. They are one of the largest producers from veggies that is the waste and they are into the eco-friendly paper manufacturing, which is going to help their brand building over the long-term and they have improved their overall efficiency levels. We are looking at earnings per share (EPS) of around Rs 48-50 for this current fiscal.

Considering the valuations as compared to the peers internationally as well as domestically, they are trading at at least 35-40 percent kind of a discount to the market valuations. So considering all these factors we are very much positive on this stock and we recommend a price target of at least around 26-27 percent upside from the current levels.

Prashant: You are also bullish on Karur Vysya Bank. Could you run us through the rationale?

A: Karur Vysya Bank is an interesting play. The bank is focussing more on micro, small & medium enterprises (MSME) space and it also targeting more of a retail play. They have expanded their branch count by 5 percent and their deposits have also grown by 12 percent. This marginal strategic shift towards MSME space would help them garner more margins as well as improve their adequacy ratios.

If we see their current distribution, they are commanding almost like 70 percent of their business from Karnataka and Andhra Pradesh and we are positive on both these states. Overall, the bank is having presence in 18 states -- majority of the business comes from the southern states. So the more bank penetrates into the retail space and the MSME space, they will command higher net interest margins (NIM)s, currently they are managing more than 3 percent in their NIMs and valuations wise it is trading at a price to book of 1.4x, that is way lower than the private players trading at around 2.2x.

The key triggers would be a strategic shift towards MSME space, the expansion into the retail space and diversification from the two states that they are currently getting the 70 percent business from towards more outside states would help in garner good commands as well as the valuations.

Reema: Your previous two recommendations Rushil Decor and RPP Infra have done pretty well. Rushil Decor is up 130 percent in the last one year, while RPP Infra has also doubled. From these levels do you still recommend holding on to both the stocks or is it time to exit?

A: Rushil is still an organic play. The company is going for an operational expansion into thick and thin medium density fibre (MDF) space, they are planning doubling of the capacity in the Chikmagalur facility. It is at the planning stages, so these are expected to realise by the mid of next year.

If you consider those numbers into forecasting of the company’s revenue, when we combined that with their improving credit quality, they have been upgraded by the rating agencies, their leverage has gone down, investors seems to like this pick and they have already achieved our two price revision targets that we had recommended since the beginning of 2016. We will consider more of it as a growth stock rather than as a value buy.

The RPP continues to be a value buy in spite of its appreciation of 25-30 percent odd in the past quarter or so. We believe that they have tremendous capability to increase their execution levels from the current levels. Order book wise they are standing at more than Rs 800 crore book, so if they can target around Rs 400-425 crore execution in the current fiscal year 2017 -- we will be looking at very high profit after tax (PAT) as well as operating margins wise growth. These factors should help the stock prices for them from the current levels. RPP is a value buy. Rushil can be growth buy from the current levels. Any decline in the prices of these stocks, we are advising investors to accumulate them.

First Published on Sep 22, 2016 03:13 pm
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