Houseviews: 4 buzzing stocks on brokerages' radar
Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy.
Q: Why have you picked up Karnataka Bank?
A: The stock has got very interesting pattern. As per the quant model that we follow, apart from the fundamental picks that we come up with, there could be very interesting development on this particular W that has been formed around that Rs 112.65 mark. So, you have got a clear-cut stop loss.
There is a strong market buzz of the company being taken over. It has been talked about for quite some time now, almost two years. But this time, with the volumes and the price action, we feel there is a likely possibility that the stock would go and test Rs 160-170 on charts.
The bank is planning to extend its branch count to 550 odd levels in FY13. That means you are getting a Rs 2,200 crore company, Rs 4 crore per branch. The valuation seems very lucrative, given deals seen in the past. Centurion Bank of Punjab merger and then its eventual merger with HDFC. Bank of Rajasthan where asset quality was under tremendous question and still there was a very lucrative deal done on that aspect too.
If that particular development happens, we feel atleast Rs 165 to Rs 180 range would be easily tested on this particular stock. The company may get merged at much higher levels. The book value of the company is Rs 130, Rs 136.8 to be specific. The company is doing an EPS of close to Rs 16-17 mark. The company would grow at 10-12 percent, given few of its NPAs.
But if I adjust all the small errors that the company has made in the past, we feel on conservative side too, the stock can give you 30-40 percent return from three-four months view, given the momentum and attractive valuations.
Q: What about Engineers India?
A: Fortunewizard focuses on the quant model. Engineers India came up with an FPO around Rs 290-270 range with 5 percent discount to retail shareholders. It got oversubscribed significantly. From that period to this period, there has been slowdown into hydrocarbon space, but the company has been able to compensate it by foraying into other areas where the order book has seen an uptick.
If you see the order book, they are sitting on Rs 55 billion, almost covering one and half-two years. Sales to order book ratio is over one. That means, from next two years, you get a significant cash flow positive.
Secondly, the company has got a lot of interesting developments on charts also, around Rs 235-250 range. By the time FPO is announced, we feel the FPO price should be priced again at Rs 290 levels, it means there is hardly anything to lose. LIC may have to subscribe to a larger chunk. But if we take an arbitrage at USD 47 to equation to 52-53, the 10 percent under valuation from FII theme is also playing out. So, Rs 290 to Rs 305 is a conservative call on this stock by the time FPO starts building in. You can get twenty to twenty five percent return from a short-term perspective.
We feel this could be another interesting bet, given the market has seen lot of momentum and retail players are looking for ideas from short-term basis and looking for safety zone. We think Engineers India provides that safety net also. So, from both angles, we feel this particular stock can have good return with limited downside.
Disclosures:
No personal positions but safe to assume stocks discussed may have been recommended to clients.
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