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Sandeep Shenoy of PINC Research said that they like stocks like Pratibha Industries, KPR Mills and Royal Orchid Hotels.

Shenoy added that thought there may be pockets of outperformance in midcaps, most of the deep pocket investors will still prefer largecaps.

Excerpts from CNBC-TV18’s exclusive interview with Sandeep Shenoy:

Q: Pratibha Industries is the stock that you like. What is the target on this one and what kind of growth projections are you looking at?

A: The stock is in a niche area of water management projects, which has got some kind of huge scalability. The bigger players are slowly and steadily exiting this project, because it is perceived to be a lower-end project for them. These kind of companies have carved a niche. They are maintaining their margins and they are getting into BOT Projects, by testing the waters. So, if all goes well, this company has the potential to double up its turnover in the next 24-months and the stock has a potential of giving a 50% return in the coming three quarters.

Q: KPR Mills is also a stock that you like. What would your call be? Do you see a 50% upside here, over the next year or so?

A: The company went pubic quite recently and received some kind of a drubbing in the markets. But this is also a company, which is seen to be really scaling up.

It has got a decent presence in knitwear and it has one of the largest presence, in the knitting segment in the Indian Diaspora. Its capacity is moving, both on the yarn as well as the fabric and pieces.

On the per piece front, its capacity is moving from 12 million to closer to 3-4 times that size. The entire capex had been funded from the proceeds of the IPO. So, on the yarn side it is moving. It is able to maintain its pricing, because of having tight control on two of its input constraints. One of them is power, for which it has got internal generated capacity and manpower, where it has rationalized as well.

So, margins are being maintained at around 20%. Despite the rupee-dollar swing, this is one company, which we feel will give you atleast 40-50% return in a year’s time.

Q: Your last pick is Royal Orchid Hotels. You are expecting 100% appreciation in 12 months. What is it that is going to drive the stock? Are you essentially looking at the business model very closely, which is more lease-based?

A: It has a pretty decent business model and more than that, it is a misplacing of assets on this. So, this is a classical value story available because there is no debt on the book.

It is moving from around 520 rooms to almost double that in the next 18-24 months. In terms of earnings stability, what this company offers may probably not move in tandem with tourist arrivals, because it is in areas where you have more business dominated arrivals. It is to manage its margins pretty decently, because of the cash on the book as well as the potential, which is offered to it, by allowing it to scale up on the room inventory front. So, there is misplacing of assets. There is a huge scalability potential and high gearing potential for that company, if it wants to ramp up. If the numbers are good and valuations are low, plus there is value proposition, this makes a potent recipe for a doubler.

Q: What is the story that you are going to be following or staying away from?

A: Auto and banking are definitely going to find some takers in the investment fraternity. But in banks, it is again going to be a particular set of sops, which are going to give you returns.

In auto, we feel that the generic uptrend may slowly and steadily start in the coming quarter or so. The heavy weights are definitely going to give good returns, but as regards to the so-called purported shift from largecaps to midcaps, I do not think that is going to happen on a generic basis.

You may see pockets of outperformance in midcaps, but most of the deep pocket investors preference is definitely going to be towards the largecap. That is why the Sensex will also be one of the key outperformers, rather than the midcaps.

Disclosure:
Royal Orchid Hotels is our portfolio stock. We do not have any personal holdings.

Source: Moneycontrol.com