18 for 18: Top stock ideas for 2018

What a dream run it has been for the Indian equity

market in 2017 - and who would have thought. If we
rewind back and talk about all the gloom and doom that
were surrounding us back in December of 2016;
demonetisation and impending huge indirect tax reform.
Well, the Indian market has come a long way and come on
top.
What a dream run it has been for the Indian equity market in 2017 - and who would have
thought. If we rewind back and talk about all the gloom and doom that were surrounding us
back in December of 2016; demonetisation and impending huge indirect tax reform. Well, the
Indian market has come a long way and come on top.

In this CNBC-TV18 special show '18 for 18', star-studded panel of market experts - SP
Tulsian of sptulsian.com, Prakash Diwan of Altamount Capital, Ambareesh Baliga,
Independent Market Expert and Mehraboon Irani of Gini Gems Consultants gave 18 top ideas
for 2018.

Below is the verbatim transcript of the interview.

Surabhi: CG Power, a company that has gone through the motions splits its business
into different verticals, is there a big turnaround in the works? What are you expecting
from the performance going forward?

Tulsian: Actually, CG Power did a mistake of foraying into the overseas business and that
was the biggest mistake they did in 2007. In fact their domestic business has been doing quite
well and having realised that mistake the company has started in fact monetising all the
overseas assets maybe for the last three years and now that seems to be coming to an end.
They have sold their Ireland unit, Germany unit, Brazil, US everywhere except for Thailand,
the transformer making unit which has turnaround and now contributing n a big way so
practically if you see pending amount to be received because many of the deals having
concluded in the last six months or so, still they have to receive the money from the buyers of
those units.

And if one sees the financials of the company of September, 30, you will find that on a net of
basis, it is a debt free company, maybe with some cash in their hand. And now, company is
totally focusing on the Indian business. And as I said, the Thailand business also, which is
profit making. If I just quickly go through, they have a very strong presence in power system
and industrial system and now, the two areas, one is transmission and distribution and second
is railways. We all know that railways are now migrating from the diesel to electric
locomotives. There the company is enjoying a very good competence and that is going to
give them a very good leeway going forward. In fact, an order of about Rs 111 crore has
already been received from the railway recently in the last one month by the company.
If I quickly go through the financials of the company, it has already posted a standalone
income of about closer to Rs 600 crore with earnings before interest, taxes, depreciation and
amortisation (EBITDA) of about Rs 250 crore. And interest, as I said, major amount has been
received in the second half or maybe is going to get received now. The interest liability was
Rs 106 crore and in spite of that, company had a profit before tax (PBT) of Rs 85 crore and
profit after tax (PAT) of Rs 70 crore. So going forward, maybe for FY19, I am not banking
too much on FY18 because that is more for the balance sheet cleaning, this can, stock is seen
to be an inflection point because of their core competence and focus on the domestic market.

So taking all this into consideration, equity is also seen to be quite low at Rs 125 crore. And
if I take the market cap and enterprise value (EV) because as I said, it is a debt free, it is
about sub-Rs 6,000 crore and generally, if you take a comparable peers, maybe like ABB,
Siemens and all that, they always rule at an EV to sales of about six times, maybe five to six
times, while this company is ruling at an EV to sales of 1x. So tremendous potential going
forward from FY19 onwards. Promoter stake is 35 percent, but the institutional holding is at
52 percent. So taking all this into consideration, one can keep a target of about Rs 115 in the
year 2018 on the stock.

Nigel: This one is a rather interesting one, Engineers India (EIL). I remember they
came out with a good set of numbers and the stock was on fire from there. You believe
that it is good for more?

Diwan: Just before I start explaining EIL and the other picks. I just wanted to caution people
that this is the first time that instead of focusing on target price, we are also talking about a
decent level or zone to get into. And for this stock, you very rightly said, ever since the
earnings came through, it has actually moved up significantly. But I believe you will get, the
market will offer us a decent opportunity to enter some time in the first half. Maybe the first
quarter itself of 2018. So, hold your horses, do not go and buy on Friday morning or Monday
morning. Give time for these stocks to come into the right zone for your buy to make
meaningful sense.

And EIL, at current levels is also discounted fairly well. The reason being the earnings in the
hydrocarbon business is a lot dependent on execution and there is a long way, the projects are
with a very long cycle in mind. It is not like consumer goods or autos where everything is
very visible. But my sense is EIL is in a very great sweet spot. You have seen crude go up
suddenly. When oil marketing companies (OMC) are sitting with the kind of money that they
had, they are no more going to enjoy themselves the way they have done for the last two
years. They will have to invest into backward integration and put a lot of money into the
refining side.

And what is going to happen is scale is going to become critical in this business. So the
smaller refineries will have to scale up or die. When that happens, companies like EIL starts
getting a lot of businesses, a lot of order booking. I will not be surprised if they cross Rs
21,000 crore by 2020 also which is the next 15 months. And that translates into some very
decent operating leverage coming in because you really do not have to deploy too much of
assets to be able to execute that.

And the marching trajectory will also improve because they have started focusing a lot on
project management consultancy (PMC) which is very similar to what NBCC does on the
construction and infra side, EIL does on the hydrocarbon side. So it is just project
management consultancy which pays them much more, the return on equites (ROE) are
better. So all said and done, it is a great stock to have in your portfolio but buy it on lower
levels.

Surabhi: How much lower would you say?

Diwan: I would give it a range of Rs 165 to Rs 170-175. Also, potentially if something goes
wrong with the market, there is a correction which is significant enough. And this time
around, out of the picks that we have, quite a few are futures and options (F&O) items. So
you also have the potential to hedge your buying on the cash side. So EIL, at that level would
make sense. You could keep on accumulating. The target is about Rs 220-225 which is not
much from current levels, but it will be about 25 percent from the level that I am talking
about.

Surabhi: You have chosen Cummins interestingly. Company was in the news and of
course, merger and acquisition (M&A) news was denied. Also, going through a bit of a
management overhaul and change. What do you see ahead?

Baliga: More than the management overhaul, I think it is the sector which is under question.
Whenever you talk of Cummins, you talk of internal combustion engines. And when you talk
of that, the first thing which comes in your mind is electric vehicles. Now what happens to
internal combustion engines over the next couple of years? But yes, I think electric vehicles
will take over, no doubt. But that is still some time away. And by the time the internal
combustion engines are completely out, I think it is going to be a couple of decades.

So, there is still a good run left for Cummins and at the same time, Cummins is also working
on electrical engines and they are already testing out in the US. By next year, you will have
most of their buses out there running on Cummins electrical technology. So, clearly their
research and development is extremely strong and Cummins India, clearly has an edge from
the parent. So looking at all this, looking at the way the Indian economy is expected to grow
because this is clearly linked to the Indian economy because with the infra growth, with the
growth in railways, clearly Cummins is going to benefit, no doubt, and balance sheet is in
extremely good position, hardly any debts.

So looking at about Rs 20 earnings per share (EPS) for FY19 and about Rs 24 FY20. This
stock should not be bought immediately because like you rightly said, it had run up because
of the rumours. So on some sort of a correction at possible levels of about Rs 860-870, it
could be bought for a target price of about Rs 1,200 or so.

Nigel: You are looking at a stock, Asian Granito India. I remember the stock at around
Rs 50 a few years ago. Then it had a big run. Promoters bought from the open market
as well towards the end of last year. Trades at a bit of a discount to larger peers. You
think that is good?

Irani: This is a stock recommended earlier by me and it never made me think more than a
minute to take a call that this is also a stock which I would like to be loyal to and believe that
this stock should be at least a Rs 750-800 over the next 12 months. Asian Granito, let us look
at it. It is the third most profitable tile company in India and it is the fourth largest in terms of
turnover because in turnover, Johnson Tiles is ahead of it.
The company has achieved this, worked very hard over the last 2-3 years, has reaped
economies of scale, has merged various subsidiaries. It has concentrated on introducing new
products, has concentrated on high margin products expanded into new geographies,
expanded its dealer network and worked on enhancing its brand presence. Earnings per share
of Rs 13? 2016-2017, Rs 13? Why should the stock be at Rs 530-540? The reason is, I
believe the company should report compounded annual growth rate (CAGR) growth of at
least 40 percent over the next 2-3 years. And I will not be surprised if the company has
earnings per share of around Rs 35-40 by 2020. Now what valuation do you give? 20? The
price is Rs 800. At 35, the price is 700. The stock is right now Rs 520.

And I do believe that yes, as and when the market has suffers a minor accident, the stock
should correct 5-10 percent. So what? As long as I see a price of Rs 700-800, why should I
bother about a 5-10 percent correction? Because, people have been waiting for a correction
for quite some time and the stock has run away like you rightly said. So at Rs 525-545, if I
see a price of Rs 750-800 which is my target, I think I am investor in this stock.

Surabhi: Next stock on your list is AksharChem India, interesting place Speciality
Chemicals, I was trying to do whatever little reading I could after the market, so vinyl
sulphone I believe is a big product for them what could be the triggers here for this
company?

Tulsian: In fact I would say that the company has two product profile one is dyes and
pigment and second is dye intermediates. Take the dyes and pigments - CPC Green, CPC
Blue are the main products and if you take dye intermediates then vinyl sulphone forms the
big this one, they are foraying into the H-acid also which is again a dye intermediate plus
they are foraying into precipitated silica also.

Under the expansion, company is carrying out an expansion of about Rs 175 crore which
should get completed may be in six months’ time and in fact in spite of such a big Capex
company will remain a debt free because for the simple reason that they raised about Rs 69
crore with the qualified institutional placement (QIP) having made in the month of July at Rs
776 and now the share is ruling closer to about Rs 700. If you see last year that is FY17 had
fabulous year for the dye intermediate largely because of the increase in the prices of vinyl
sulphone, H-acid, J-acid, gamma acid and in fact many of the players pure the dye
intermediates have really shown excellent numbers. So, while comparing year-on-year in
spite of company having posted an earnings per share (EPS) of Rs 21 for H1 share price has
corrected because obviously market had disappointment because there was a drop of about
maybe 50 percent in the profits after tax (PAT) and the share corrected from a top of Rs 990
to the present levels of Rs 700.

If you see the theme going for the dye intermediates and dyes and pigments both are doing
very well. They are the largest exporter of vinyl sulphone from India having 45 percent
market share plus they are having one amongst the largest producer of CPC Green amongst
the world having the 10 percent market share. So, once they will be having this expansion
completed in next six to eight months their topline will increase by about 80 percent giving
excellent operating leverage.

As I said company will continue to remain debt free. So, if I have a H1 EPS of Rs 21, H2 is
definitely better because of the increase seen in the realisation in margin of dyes and
pigments and dye intermediates. So, take Rs 45 as EPS for FY18; for FY19 I think that will
be a real big explosion in earnings. I won’t be surprised to see an EPS of about Rs 75-80 also
for FY19 and that will really be a big kicker for the company to post growth in its topline as
well as in bottom-line. Maybe topline will show a growth of about 60-65 percent bottomline
will show a growth of about 80-85 percent. So, taking that into consideration share can give
you a level of about Rs 880 in a six months or so which is now ruling closer to about Rs 700.

Nigel: Your second pick for today Kirloskar Ferrous Industries capacity utilisation
levels lower, so it is given that headroom and I think balance sheet not to bad?

Diwan: I think the rally on metals will possibly continue and percolate now from the
largecaps to some of the select midcaps smallcaps also. In fact this is one of the very few
small caps that I felt still hasn’t got re-rated crazily upwards and lost out on the potential to
buy in. What is good about this company is one is of course the pedigree is very strong and as
you said financials are in place. They have descent cash on the books, debt-equity ratio of just
about 0.3, they would move into return ratios of 20 percent plus, 21 percent plus in the next
year- year and a half. They are into castings and pig iron, their two primary business. Now
the pig iron business is very simple to kind of understand, but the moment application of steel
goes up the conversion from iron ore to other forms of steel needs pig iron. That is an
intermediate stage that you have to go through.

Now what was happening is Karnataka unit which was there since a long time never had
order books which are very decent, but lot of these mines that have re-opened around Bellary
and all that and that is giving them a huge advantage. So, they will get operating leverage and
as you said castings are using 50 percent capacity they have already done enough Capex they
don’t need to put in more money. Castings what do they make? They supply a lot of
equipment’s to agri equipment manufacturers. So, it is tractors, tillers and that is an area
which all of us love, so there is so much of an upside there. So, this is in a sweet spot, has a
very good relationship with clients for long years, Kirloskar pedigree to back it and
interestingly last quarter some of the domestic institutional investors (DIIs) increased their
stake in this business also.

So, I think it is probably that stage where it is getting kind of ready to take off. I would give it
a target of about Rs 145-150 whereabouts but you could buy this at current levels or at dips
and definitely it will be seeing some major moves for the 2018 kind of period.

Surabhi: You are trying to pick the bottom for this one because this is the non
performing stock. Videocon is what we are talking about - Dish which will merge with
Videocon. Average revenue per user (ARPU) has been suffering, we know the story but
everybody is waiting what happens after the merger if then there is a mark change in
the business?

Baliga: Generally, sectors like these pass through couple of phases. The first phase is when
there are too many competitors, margins are under pressure and then you get into a phase of
consolidation. What we have also seen Dish taking over Videocon. So, post the phase of
consolidation you normally have the margins starting to move up and that is what I see
happening as far as Dish is concerned. Secondly, we have seen that ARPUs were bad, they
are improving and they have stabilised at this point of time. I expect that to improve going
ahead.
Thirdly, you have these multiple-system operator (MSO) where major competition and there
was a huge arbitrage in the pricing of MSOs as compared to the Dish once so that arbitrage
has reduced which is also positive for Dish. We are expecting that Doordarshan which is free
to air may not remain free to air going ahead. So, looking at all this and the sort of subscriber
additions they have been doing in the past couple of years I mean that has been superb
although ARPUs were not up to the mark but subscriber additions are superb. That will start
paying off now.

Because even if ARPUs move up by other say Rs 10-15 that is a huge addition to bottom-
line. The most important thing what has happened is on the valuation front because all of
them were getting decently low valuations but with Warburg Pincus deal we are clearly
seeing that Dish seems extremely cheap as compared to Airtel DTH. I mean looking at the
valuations they have given, so that valuation gap also is there. So, from that point of view I
think this stock can move up from current levels of closer to about Rs 80 to Rs 110-120
which is a conservative estimate for possibly the next 8-12 months but if you are looking at
EPS for FY20 which I expect to be about Rs 4.50-5 at that point of time you could possibly
see the stock at much higher levels.

Nigel: Would you buy this stock on the dip or at the current levels?

Baliga: I think at these levels there is no harm. But generally what I recommend is buy in
various tranche. Don’t buy everything at one go. Because this market has lot of fluctuations.
So, I think you should buy possibly about 4-5 tranche, whatever you buy.

Nigel: You have got a chemical company that you are looking at and when I was
growing up I used to watch lot of CNBC-TV18 and a couple of factors one is promoters
increasing stake and if it has a clean balance sheet those two factors always stood out
from the simplest investing point of view. What is the pick you have next?

A: Nigel, I think you have worked already on this company and I would say that I am very
gung-ho on this stock. The company’s names is Fineotex Chemical which is also known as
FCL. Let us put it this way the company is one of India’s largest textile chemical
manufacturer which provides customised solutions to the entire gamut of activities in the
textile sector. It services a customer base which is in a way sticky, it doesn’t move to any
other chemical manufacturer so easily. It has a high pricing power, there were higher
margins. It has got its manufacturing facilities in Navi Mumbai and also a subsidiary called
Biotex in Malaysia where the company has got 68 percent stake. It is a Star Export House has
presence in 33 countries and what you rightly said balance sheet absolutely clean.

Rs 22 crore equity, Rs 11 crore shares because it is Rs 2 face value, zero debt, consistent
dividend paying company. Earnings per share of around Rs 1.80 of last year should at least
become to Rs 2.50 this year and should move to Rs 3.50 to 4 next year. This is without one
major trigger which I am coming to I think early this month in the very same place Bombay
Stock Exchange the company was rewarded as the fasted growing chemical manufacturer in
India. Now the company has developed a product in Malaysia using European design
engineering which is styled as Aquastrike VCF.

Let me explain to you what is Aquastrike VCF is? This is an environment friendly non-toxic
revolutionary solution which doesn’t kill mosquitoes alone but kills the larvae and the pupae
of mosquitoes. Completely eradicates mosquitoes. The ministry of health in Malaysia’s has
already given it a go ahead. It can be used by common citizens like you and me directly. It is
a non-pesticides, not poisonous to humans and they have already effected sales in Singapore
and Malaysia. The company has applied for patent and has also applied to the WHO and the
numbers as far as the financials goes which I have mentioned is without taking into account
any sales from this product. But I believe this product has a potential to deliver business of
billions of dollars in the years to come for this company.

Rs 22 crore equity, again I repeat with zero debt, promoters have increased their stake from
62 percent to 72 percent over the last four years. They declared a bonus issue in 2014-2015
and have reserves of over Rs 100 crore on an equity of Rs 22 crore. I think with an earnings
of Rs 2.50 coming in the current year which can go to Rs 3.8 as I rightly mentioned the stock
at Rs 50-52 is a clear steal and I think a price of Rs 80 to even Rs 125 can come over the next
12 months.

Nigel: You are looking at a cement company? Give us details there. What is the target
price?

Tulsian: In fact, we have been keeping extremely bullish view on cement and in fact, I will
not be surprised to see the average capacity uitilisation which is now seen at around 70
percent across India will get increased to about 85 percent. And in that theme, JK Cement, in
fact, what is happening, market is giving good valuation to the companies having capacity of
10 million tonnes. In fact there are three layers, 10 million, 25 million and 50 million.

And 50 million and above only falls one company that is UltraTech and there are many
companies in the 25 million space and 10 million also. So if you take a call on this company,
they have a 10.5 million grey cement capacity. Apart from that, they are into white cement
also with a capacity of six lakh tonne per annum with a 45 percent market share and if you
take a call on white cement, it is a duopoly market. Only two players are there. One is JK
Cement, second is UltraTech.

Apart from that, they have the wall putty of seven lakh tonne per annum. And in fact, the
financial performance for the first half, generally cement companies are posting an earnings
of about 33-40 percent in the first half and with not a significant growth having seen in any of
the companies for this H1 FY18, if I really take a call. But this company has shown
extremely better numbers for H1 FY18 over H1 FY17. And if I just take a call, Rs 15 EPS
was last year in the first half and this year it is Rs 25.

And second half, they had about Rs 25. So if you take in all, about Rs 37-38, EPS which they
have posted for FY17, they are going to end this FY18 with an EPS of abut Rs 60. Now,
come on the financials. Very low equity at about maybe Rs 70 crore with a face value of Rs
10 and market capitalisation or the EV is quite low, seen at about Rs 7,600 crore as market
cap and EV at Rs 9,100 crore. And that translates into cement per tonne capacity at about
USD 110. But the best part is that the company has already taken up the capacity expansion
to 14 million tonne and that should get completed maybe in the next 12 months or so.

And I am expecting that company has given a capital outlay of about Rs 1,500 crore which
translates at about maybe USD 65 per tonne. And since the company has cash accrual of
about Rs 9,00,000 crore, they should be largely have this entire capex of Rs 1,500 crore from
their internal accruals. That means not by increasing the debt, keeping the debt at constant
level of Rs 1,500 crore. And excellent, maybe for FY19, I will not be surprised to see the EPS
moving to about Rs 78-82 which is likely to be at about Rs 58-60 for FY18. So taking all this
into consideration, share is likely to give a level of about Rs 1,370 in 2018 which is now
ruling at sub-Rs 1,100.

Surabhi: Finally time to pin you down because incidentally, we were just having a
discussion on the show. You like aviation, but you would not give us a stock name till
now. So let us hear it.

Diwan: That was still market hours. I am very positive on the fact that this is an extremely
difficult and risky business and we still have the listed players doing very well. And the
reason is because we are probably at the take-off stage for the entire sector as a theme within
the country. And I was surprised pleasantly to hear that IndiGo has been the first company to
have taken off 1,000 flights in a day. Now 1,000 flights in a day is really big and very few
companies have been able to do this in such a short span of time. But here we are not talking
about IndiGo. The pick that I have is Jet Airways.

Surabhi: Despite the run up. That is what I think. Despite this massive run on the stock
already.

Diwan: On crude, yes.

Surabhi: On Jet Airways itself. But it is like this. Everybody is expecting IndiGo to be
so well performing that if there is any slippage in their performance metrics, people will
punish it. But if Jet does even half as good, they want to reward it amply. So that is the
whole expectation from Jet because it has been a down and out.

People who have flown Jet Airways know that it is primarily because of the connections that
they have in certain sectors and the JPMiles that you get, that boasts business class travellers
also on the corporate side. But, my sense is Jet has started doing a lot of things in terms of
cutting down costs. Their efficiencies would change dramatically and if you have a KLM or
an Air France or somebody bailing them out on the balance sheet, apart from profit and loss
(P&L) the balance sheet will also start getting repaired quite well. And if you notice, quietly,
there has been a reconstitution of the board itself.

So, from a lot of people who are just iconic names and generalists, sitting on the board, they
have actually got people with experience from aviation and similar sectors and that is driving
things very rapidly. So if Jet transforms itself, it will get rewarded very easily. So I am
expecting that to be a turnaround story of sorts.

Surabhi: So how much more in 2018?

Diwan: I would not be surprised if it goes to that Rs 1,100 kind of a mark as well. So I know
it has already moved quite well, but it will be volatile, it is not going to be a smooth ride. But
it will reward people. Patiently hold on to it, especially this year.

Nigel: Your next pick? A banking pick?

Baliga: Yes, it is Karur Vysya Bank. So I would say this is a prime example of why you
should stick to your core competence, why you should do what you know best. Because, they
understand retail and small and medium enterprises (SME). But they wanted to get into big
ticket and that is where they have got stuck with NPAs now.

The other thing is as far as banking is concerned, clearly, this is true for a number of other
sectors but especially banking, it clearly depends on who is leading it. And, we have seen this
happening in IndusInd Bank which Mr Sobti took over and then you saw IndusInd doing
extremely well. Federal Bank, more recent, Shyam Srinivasan took over, is doing decently
well. So here also, there is a change of management at the top. Mr Seshadri has joined in who
has years of experience at Citi and he is expected to change the face of the bank. And now
with clear focus again back on SME and retail, I actually expect this bank to start doing well,
possibly after a gap of either 3-4 quarters. That is the time it will require to clean up.

Looking at an EPS of about Rs 8 for FY19 and about Rs 14 for FY20. So again, looking at
the capital adequacy which is at a decent level. There has been an infusion of funds. That is
two rights. So, I expect the bank to maintain those NIMs currently and expect that to move up
in FY19 and FY20 because of which you will have the EPS moving up. So the downside at
these levels of very minimal. That is what one should look at whenever you are buying stocks
at Sensex 34,000. So upside I am looking at is about Rs 160 in the next 9-12 months.

Surabhi: Your next pick is Edelweiss. Now already up 200 percent, so I want to
understand what do you think is the biggest driving factor. Is it simply a growth play?

Irani: I think it has been very consistently positive on Edelweiss. I think CNBC was a channel
where I had recommended first time at maybe around Rs 120. Rs 120 became Rs 300. A
colleague in the office told me, you are being greedy by recommending this stock all over
again. I said yes, bond yields at the level at which they are, inflation could become a dirty
word, at least in the first half of 2018, interest rates possibly the cycle could turn. Should I
actually recommend Edelweiss? And my answer was 100 percent yes.

Can the stock came down by 10-15 percent? Certainly, yes. But will it be a Rs 450 stock
which is my target over the next 12 months? My answer is again yes. So I think Rs 290
becoming Rs 450 is happening, it will happen. And Edelweiss is not the small player in the
capitals market segment which it was years ago. It has evolved itself. It has gone into lending
business, started with wholesale lending, now into retail lending where it is meeting with a lot
of traction.

Point number two, it is into asset management business, wealth management business, but the
biggest trigger is the stressed asset business where the company is number one by a big
distance over the number two and number three player. As far as insurance business goes, I
think the losses should peak out over the next 12 months and the biggest contributor apart
from the asset reconstruction, stressed assets business over the next two years according to
me could come from the wealth management business, the advisory business and the asset
management business. Earning could show an exponential growth over the next 2-3 years. It
is difficult to quantify it. Current year should be Rs 10 EPS which should possibly become
maybe Rs 20 in the next two years, I do not rule it out.

So Rs 290 looking at it, like you rightly said, Rs 100 becomes Rs 290, should I buy into it.
The answer is if it becomes Rs 450, why should I possibly bother of Rs 230-250 coming
again. I would put it that way. It is very difficult to time stocks like Edelweiss which is
showing exponential growth. So I will stick to it and recommend it as one of the best picks of
mine for 2018 also.

Surabhi: Coming to your next pick and that is Jaypee Infratech, very interesting, people
are wondering how it will eventually all pay out to the courts and through the
bankruptcy proceedings, what is the sense and what is the trigger here?

Tulsian: Take this as a wild card entry and if you really take the situation, two stocks I will
quickly I am not trying to give any comparison the two stocks one is DB Realty and second
is Reliance Communication. The movement we have seen any kind of favourable indications
coming in either by way of favourable 2G orders DB moved up by about 60 percent in two
days or three days. RComm the moment we have seen debt resolution scene happening the
stock moved up by about 100 percent in this last couple of week. If I just quickly come on
Jaypee Infratech the company has 165 KM Pune Expressway with a residual concession
period of 30 years. Generally, in all road projects you have a total concession period of 20
years here it was 36 years of which they have completed six years so they have residual
concession period of 30 years. Apart from that they have Rs 27 crore sq feet of land under
development at five locations. One in Greater Noida, two parcels in Gautam Budh Nagar, one
in Aligarh and one in Agra.

If you really take a call right now affordable housing is the only sector where the tax free
income is allowed by the government of India none other sectors have that. Of this Rs 27
crore sq feet company has only taken up development of Rs 6 crore sq feet for which the
litigation in Supreme Court is going on. Supreme Court earlier directed the JP Associates the
promoter to deposit Rs 2,000 crore but then they have reduced that to Rs 550 crore of which
Rs 425 crore has already been deposited. I don't think that Rs 125 crore being the last
instalment is going to get default by the promoter that is JP Associates on January 25th. Apart
from that 20 potential acquirers, you just name who is who, they are lined up to take up this
company they are going to be quite aggressive because two portfolio one is Rs 21 crore
residual sq feet of land under development and 165 KM.

Today if you all have read the report about 5,000 flats will be delivered by the group by
March 2018 of them some of the flats are of JP Associates also some of them are Jaypee
Infratech also. So, once you have any kind of resolution seen in sight coming in and you will
see the stock just running up. I just gave those two examples, the way it moves up on the
downside, even on a valuation kind of bases if you take say Rs 500-600 sq ft land
development that is seem to be quite low. So, given a target of Rs 24 in the year 2018 but one
can even keep a time horizon on the stock till 2018 to see may be higher gains more than Rs
24 also.

Nigel: You are picking up Camlin Fine Sciences. The stock has flattered in the past to
only deceive but this time you believe it is good for more?

Diwan: Yes, because it has been a laggard of sorts. Let me run you quickly through what it
does and that is what makes it so compellingly attractive. This company is the third largest
player in antioxidants and food flavours which is something that is very unique in terms of
chemistry and is not easy to replicate. The problem with them was that they have not been
able to scale up, but what has now happened is that their Dahej unit in Gujarat, there is a
financial closure they have been able to manage. They raised some money through promoter
preferential allotment and some QIP which was very small though.
Now once it gets into this whole value chain from raw material to final food blending and
especially in the export markets in the US and all, and you all know that US is picking up
dramatically and is expected to do so in 2018, I was looking at a theme which is linked to the
US growth story and was into chemicals and had no competition and this qualified. My sense
is it could see a growth of about 30 percent on revenues and EBITDA could probably double
in these next 18 months. So that is where the story lies. Even if you discount FY20 earnings
which is 15 months away, probably with even 21-22 you get a target price of Rs 199-200
which is a decent upside from where it is. So hopefully, it will make the right noises and not
disappoint this time.

Surabhi: Moving to your next pick, I must say I really like their tagline, 'It's the way
you make me feel', Monte Carlo. But, coming to the stock itself, the issue price was Rs
645, if I am not mistaken. Stock has gone through its own journey.

Baliga: It has been an underdog completely.

Surabhi: So what is the trigger? What is changing now?

Baliga: We remember Monte Carlo only during winters. That is the time we hear about it. So
clearly the business was seasonal. And what affects this, if you look at the other sectors, they
get affected by the economy, so this gets affected by the economy as well as the weather. So
if you have a weak winter, it affects the sales and that is what had happened in the last two
years. But now, since the last couple of years, they have also been trying to move out of that
and get into cotton fabrics in a large way. But that summer was not very successful, but now,
with their revised strategy, I expect that things should fall in place.

They are increasing their institutional sales, increasing their exclusive brand outlet (EBO)
footprint, getting into more of sub-brands, ladies and kids wear. So this should really work
out well for them because the initial feedback which has come has been quite decent. So
looking at an EPS of about Rs 36 for FY19 and about Rs 49 for FY20, it looks very cheap
compared to other branded players. So, this is because of history, but it should catch up. So at
these levels it looks decently cheap, possibly have a downside of about 5-7 percent which is
there with any stock, but looking at a price of about Rs 740 over the next 9-12 months.

Nigel: Sterlite Technologies, that is the one you like?

Irani: Again, consistently positive on this stock and the reason is that one can defend the
valuations because the growth is going to keep on coming. I think it is a global leader,
number one in telecommunication equipment which includes optic fibre, optic fibre
cables, data cables. The company has operations mainly in India, China and Brazil, but has
marketing network nearly across the world. Global demand continues to be robust from
China which has 55 percent of market globally and also from Europe and US.

The company works on three platforms. Number one is the product, number two is the
services and number three is the software vertical. The company, despite having made a
lovely capacity expansion does not have any stress in the balance sheet with a debt equity less
than 1. The company should be spending at least Rs 10 billion on further expanding capacity
over the next 2-3 years and I promise you, I believe that the debt equity will become more
comfortable despite spending that kind of money. The earnings this year should be Rs 8-9,
but I will not be surprised is these earnings double over the next two years to Rs 17-20 by
FY20. I believe that if one tries to look at the traditional EPS manner, Rs 7-8 going at Rs 290,
stock looks expensive.

I believe the market will continue to give it a thumbs up which it has given in 2017 because
of the growth which this company will report. Also, digital India, the favourite concept of our
Prime Minister should bring in more and more orders coming from within the country also.
So I think Sterlite is on a good wicket, again the stock, can it correct by 10 percent, who can
stop it? You and I cannot stop it. But Rs 250-300, but I believe this stock has the potential to
be Rs 450-500 stock over the next 12 months.

Surabhi: Let us come to your last pick, Cineline.

Tulsian: This is purely a real estate company and if I just go through quickly, they have nine
cinema halls in Mumbai, Thane and Nasik and all are leased to PVR. So they are getting a
fixed annuity income. Apart from that, they have 84,000 sq ft of saleable area booked in
Kanakia Wall Street. This is again a commercial complex coming on the Wall Street concept
which will get leased out by them maybe for about Rs 15 crore on annuity and the possession
should be given to them maybe in the next 12 months or so. Third property which they are
owning is a shopping mall in Nagpur which is 90-95 percent occupied.

The intent to monetise and the amount which is estimated to get realised is about Rs 250
crore. In fact, if you see, amongst the realty space, generally either they do not have the
earnings or they are overleveraged. But in the case of this company, they have consistent EPS
of Rs 4 on an annualised basis and the debt is just Rs 130-140 crore with market cap of Rs
310 crore, EV of about maybe Rs 440-450 crore. And if you take the conservative valuations
because as I said, nine cinema halls are all going to get developed maybe every couple of
years, one or the other property which will keep giving them the further monetisation of each
property as well.

So the net present value of the property insiders or maybe the experts are estimating to be
about Rs 1,250-1,300 crore, promoter stake is quite high at 70 percent. So taking all this into
consideration, share now ruling at Rs 109 can be looked to have a target of Rs 136 in 2018.

Nigel: Finally the 18th stock is a Nifty stock it did well it was welcomed into the Nifty
after that it has not done much?

Diwan: This is UPL, as you said it did well, but it has just come into the Nifty so there is still
long way to go. What actually worked against them and which brought the stock down was
they had a lot of one of expenditure which came on account of some legal issues battles that
they were fighting in Europe on patents and all. But their new product development has been
so robust that once the Latin American, North American market takes off for them which
they are initial signs of that moving very soon you will see this company getting re-rated very
whole heartedly. Whatever has been taken away from it will probably come back to it in a
significant way.

It is a Nifty stock risk reward is favourable, discount at 16-17 times on FY20 you will still get
probably Rs 1,000 as a target which is 50 percent from where it is now. So, I loved the set up.
It is a Biocon of 2018. It kind of surprised people because it has not done anything, nobody
has bought into it, but great pedigree and great product line as well.