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Among his top midcap picks, Sejal Doshi, CEO, Finquest Securities recommended Cinemax as he feels their expansion is going to drive the company’s earnings and profitability reports CNBC-TV18.

JK Lakshmi Cement is his other pick as he feels the entire effect of their expansion will kick-off in 2009. Also he is expecting and EPS of about Rs 45 and the stock is trading at less than five times which he finds very attractive.

He also like Gayatri Projects as it has an upside on the BOT valuations. According to him, a lot of value unlocking will come in as the company has already invested Rs 150 crore in BOT projects.

Excerpts of CNBC-TV18’s exclusive interview with Sejal Doshi:

Q: Let’s start off with Cinemax first. You have about a 40% appreciation in terms of price target from hereon. What is going to drive growth?

A: Essentially Cinemax, as we are looking at the multiplex play, is one that is predominantly concentrated on Mumbai. But I think it’s the expansion, which is going to drive their earnings and profitability. They are looking to expand from 8 properties to 40 properties and to around 140-150 screens. So, that is what we see over the next 2-3 years.

So, essentially we are expecting a profit CAGR of over 70%, essentially driven by more volume play, more number of screens getting on stream, especially in 2009. That’s where we are seeing it. If I compare the valuations, it is trading at around 11 times of our ’09 expected EPS of Rs 13-14. If compared with any other multiplex player, it’s relatively cheap. So, that is why we are saying that this stock is due for re-rating.

Secondly, the promoters do have a real estate developer background. That helps them in identifying suitable sites at the new locations at appropriate pricing. That is where they have some advantage. If you see in the multiplex, most of the players have been affected because of the late delivery of the properties, but I think Cinemax, to an extent, can curtail that concern.

Q: The other pick you have is JK Lakshmi Cement. What is it that you like about this stock and could you give us a price target on that one?

A: JK Lakshmi Cement is a predominant player in the Northern and Western markets which are the two most lucrative markets for the cement sector per se. It has a capacity of 3.4 million tonnes per annum.

The main part is that JK Lakshmi did their expansion, most of the players are on an expansion stream in the cement industry per se, but they did their expansion at the right time. In 2007, they expanded from 2 million tonne to 3.4 million tonne and now they are on the verge of expanding it further to 5 million tonne by October 2008. We will see the entire effect of that new expansion kick-in, in 2009.

But even on current valuations, we are expecting an EPS of around Rs 45 odd. So, the stock is trading at less than 5 times, which is pretty attractive.

Secondly, apart from expansions, they are also going in for operational efficiencies. They are setting up their captive power plant, which will result in some Rs 12-15 crore of savings per annum and once that too comes in, we will see the margins as sustainable. Also, even though there is some uncertainty prevailing on cement prices, prices may come down and this sort of power cost saving will help them in sustaining their margins. We are expecting a target of around Rs 250-260.

Q: What are you expecting in terms of a price target for Gayatri Projects and what sort of an order book growth over the next couple of years?

A: We like Gayatri because it is a midsize player, having an order book of Rs 35 billion and its order pipeline is also pretty strong. But we feel that current Rs 35 billion is enough for execution over 24-30 months. So, we are expecting this to be executed over the next two years and we are expecting an EPS of around Rs 37. If I compare, it is available just at 10-11 times its ’09 earnings.

Further, there is an upside on the BOT valuations, because the BOT projects will get executed by March 2009. So, that’s where we’ll see a lot of value unlocking coming because they have already invested Rs 150 crore in BOT projects. So, we expect a conservative target of Rs 450, but a re-rating in the stock could come up from their BOT valuations.

Also in their order pipeline, we feel irrigation would be the major driver as more states get into that drive.

Disclosures:
We have been recommending these stocks to our clients. So, we may be having some positions on that, and our clients may also be holding these stocks.

Source: Moneycontrol.com