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It's Diwali time! Which stocks have caught the imagination of market experts this festive season? Which stocks do they feel, will rise like a rocket this time round and brighten up this Diwali? Market experts pick their favourite stocks....

Sanju Verma, ED & Head Of Institutional Business, HDFC Securities said the derivative indicators (F&O) indicators are positive as it shows the markets are not over bought. She advised that investors should shift out of RPL and move to Reliance Industries. According to Verma IT companies have been able to manage scalability, attrition and hire rates for their contracts.Meanwhile, Welspun Gujrat is Verma’s Diwali pick.

Verma on Welspun Gujarat:

One stock which we as a house have been very bullish on, I can say this with absolute conviction, I don’t think anyone initiated or marketed Welspun when it was trading at Rs 74 in October 2006. We released a report then as part of our sector report on pipes and tubes. In September we had again initiated a follow up on the stock at the price of Rs 231 with a price target of Rs 420 which stands revised to Rs 500 post the excellent second quarter results posted by Welspun.

I think Welspun is not just another pipes company, it is a proxy to the larger oil and gas play given that oil is trading at USD 100. I don’t think it will come down to anything less than USD 80, at least over the next one year, if things stand as they are today. Welspun certainly stands to benefit a great clientele by way of Exxon Mobil. Other pipe companies have operating margins in the region of 10-12%. This company has operating margins in the region of 15-16%, slated to go up to 20% plus in the next six months.

If you look at ’08 numbers, Welspun is certainly expensive. So it’s not for the faint hearted who have six month horizon. But it you are looking at FY09, the stock, even at our exit multiple, even at our target price of Rs 500, would be trading at just about 16 times or thereabouts. So, for somebody with an 18 month view, this is certainly the stock to be in, if you are still looking at a multi-bagger despite the sheer out-performance in the last one year from the company.

Mehraboon Irani of Centrum Broking's views on Kilitch Drugs:

I like the stock because of the new unit, which the company has set up at Himachal Pradesh, which started operations in January and if you look at the numbers over the last two quarters the sharp increase in sales and profit is mainly because of this. Not only contributed in turnover but whole lot of excise benefit and other tax benefit the company gets because of the its unit at Himachal Pradesh is very important. The company is presently operating at the new unit at around 25-30% capacity and as the capacity grows the numbers also topline as well as the bottomline should grow. The company presently has equity of around Rs 13.2 crore promoters own around 70% of that. For the current year, for the first six months the net profit of Rs 5.2 crore I expect to be around Rs 14.5 to 15 crore which should possibly be more than double when the company operates at nearly 100% capacity and I am looking at the net profit of around Rs 20-30 crore which gives it an earnings of around Rs 23 to 24 per share for 2008-09. So I think even if we give it a very conservative PE multiple the share should atleast minimum double from here and this would be my script for Diwali.

Shahina Mukadam of IDBI Capital Markets expects Man Industries to do very well going forward. She is also positive on Pidilite Industries.

Shahina Mukadam on Man Industries:

The company is benefiting tremendously from crude oil prices moving close to USD 100. This has led to a lot of E&P investment across the globe. Indian companies have a lot of stake in the opportunity that is evolving in Africa and the Middle East. They account for almost one-third of execution of orders out there.

Man Industries is one of the four players, which are there in the Indian market. In terms of growth, they are showing very strong, healthy growth of close to about 20% on a turnover basis. In fact, they have got an order book of around Rs 220 crore, which is almost 1.5 times ’08 estimated revenue and close to 1 time FY09 revenue. So, they have got a very strong order book position.

In terms of capacity, they are building capacity. They are increasing capacity from 800-1000 metric tonnes per annum to over 1 million tonnes over the next three to six months. And in terms of valuations also, it is pretty attractively valued at just about 8 times FY08 EPS of close to about Rs 15. I think it does offer value.

Shahina Mukadam on Pidilite:

Pidilite is the largest manufacturer in India of adhesives with very strong brands including Fevicol. So, we basically like the positioning of the company not only in its existing brands but also in the line extensions that the company is introducing in various segments. For example, they have recently launched a product, a coating type of paper, which prevents unwanted paint to come on to your furniture. So, I think very interesting products. And over and above that, the company has announced an FCCB very recently and the conversion price is at a substantial premium to I would say the existing price, which again shows the positive sentiment that is there for the company. In terms of valuations, the company remains pretty attractively priced. It is not a cheap stock. It is above 22 times its FY08 EPS of about Rs 9. So, it is not very cheap. But I think in terms of growth, they have had a PAT growth of close to 70%. So, I think in terms of relative valuations and in terms of a peg basis, it still looks attractive.

Regarding future targets, Mukadam said, "For Pidilite I would say Rs 250-260 looks definitely achievable and for Man Industries, we have a target of close to Rs 190." Ashish Chugh, Invesment Analyst & Author of Hidden Gems is positive on Ansal Housing and Blue Coast Hotels. Regarding Ansal Housing, he said that the company has good execution capabilities; they have been in this business for more than 20-25 years and there is a visible scalability in the business in terms of the new projects.

Chugh on Ansal Housing:

I would go with Ansal Housing; Ansal Housing is basically a real estate company. It started its projects mainly in Delhi and NCR. Now it has expanded to other parts of the country also. This company is doing a total 22 townships, which include townships in almost all the states in northern India and they are doing projects in Madhya Pradesh; they are doing few projects in Indore and Bhopal and besides these states they are doing two residential projects in Mumbai; in Worli and other in Mulund. This company is developing an IT Park and a residential complex in Bangalore also. Also, they have got housing project in Sri Lanka.

So as far as real estate business is concerned this company is currently present in almost all the sectors and real estate - be it commercial or residential township and they also have plans to make hotels wherever they are doing the townships.

The total value of the projects, which the company is doing, is close to Rs 6,000 crore. If one looks at the financials of the company for FY06-07, this company did total revenue of about Rs 200 crore; profit after tax was about Rs 43 crore, which results in an EPS of Rs 25. For the first half of the current financial year, this company has locked in a growth of about 30% in sales revenues and 57% growth in profit after tax. For full year, we expect the company to achieve a profit after tax of about Rs 55 crore which would translate into an EPS of Rs 35.

If one looks at the valuation of the company, you have a company doing a PAT of about Rs 55 crore, market cap is just about Rs 280 crore. They have total value of projects of about Rs 6,000 crore, market cap is just Rs 280 crore, and stock is trading at a price to earning ratio of about 5 on the current price and on 07-08 earnings at a PE ratio of 7 on last year’s earnings.

They have got good execution capabilities; they have been in this business for more than 20-25 years and there is a visible scalability in the business in terms of the new projects, which they are doing. So I don’t think in the current market one will find too many real estate stocks with that kind of under valuation.

Chugh on Blue Coast Hotels:

This is more of an illiquid counter; will have hardly any trading volumes taking place in this counter and it’s not a stock for a trader because getting the stock and selling the stock is a problem here. But if one looks at the fundamentals of this company, this company belongs to the Delhi based Morepen Group; they own the Park Hyatt Resort & Hotel in Goa. This hotel is built on about 45 acres of sea front land and this hotel has got location advantage in terms of its proximity to the Goa airport. They have been promoting this hotel as high-end luxury retreat with one of the world’s best spas and if one compares this hotel with a peer group, namely Advani Hotels; the annual calculation - Advani Hotels currently has a market cap of about Rs 370 crore. They have a debt of close to Rs 25 crore which translates into an enterprise value of Rs 400 crore. As against that, Blue Coast Hotels has got a market cap of Rs 110 crore; they have a debt of another Rs 110 crore and a preference capital of about Rs 81 crore. This would translate into an enterprise value of around Rs 300 crore. If one sees the size of operations of Advani and Blue Coast; Advani is just about 40% of Blue Coast in terms of revenues. Advani Hotels is built on a 23-acre land as against 45-acre land for Blue Coast.

If one assumes that on a very conservative basis that the enterprise value of Blue Coast is same as Advani, this would mean a 100% increase in price over its current price and again to be on conservative basis, if one assumes that the enterprise value of Blue Coast is 50% more than that of Advani, this would mean a four-fold increase in the price of Blue Coast.

If one sees the financials of Blue Coast, for FY06-07, the total revenues were about Rs 83 crore, PAT was about Rs 10.25 crore. This company has got a small equity of about 6.6 crore. So this translates into an EPS of about Rs 15. In the first half of the current financial year, they have manage to increase their sales by about 18% and generally first half of the financial year is not that good for hotels in Goa. In spite of that this company has made profit of about Rs 1.6 crore as against the loss of close to Rs 2 crore for similar period last year.

For full year this company is expected to achieve a PAT of about Rs 15-16 crore which would result in an EPS of about Rs 23-24. So at the current price of about Rs 170, this stock is trading at just about 7 times its earnings and if you compare it with the peer group, the stock looks grossly undervalued.

Rahul Mohindar, viratechindia.com prefers Vijaya Bank. He said, “The stock we like is Vijaya Bank and clearly we are looking at this from a medium to long-term perspective. If the stock really sustains past Rs 64 it is going to breakout and short-term traders could be looking at Rs 76 price target. On the long term our sense is that the stock will get into Rs 84 levels. So definite buy at these levels at from my side and by chance if it goes lower Rs 53 is also very good support that’s the point I would call a buy.”

Disclosure: Some of the experts and/ or their clients may have an investment interest in the stocks they have discussed.

Courtesy: moneycontrol.com