In a chat with ETNow, Daljeet Kohli has identified two stocks that can be bought because their valuations are attractive
Cairn India – very bullish as valuations are attractive:
On the overall oil and gas pack, we are very bullish. We believe that crude will not always remain at this level and therefore if you have the confidence that in the next one or one-and-a-half years it will be much higher than what it is today, probably Cairn India and ONGC are the best plays to take that advantage. Especially Cairn India because it has fallen off much more than other peers. First 15% fall was because of the corporate governance issues when the promoters took away some cash from this company to their promoter entity and then 35% fall due to the crude prices. So now, we believe that most of the negatives have been priced in. The stock is trading attractively 0.8 times of one-year forward book value whereas normally it trades at 1.2 times of one-year forward book value. So that gives a lot of comfort and it is also a secondary play on foreign exchange currency. So if the rupee remains around 62-63, it is good for Cairn India. We are very comfortable in buying Cairn India. We have a one-year target of 317.
Mastek – listing of insurance subsidiary on NYSE will result in value unlocking:
We have been recommending Mastek right from 140 odd levels for the last one-and-a-half years and that thesis basically was that this is value unlocking story when they will demerge their two businesses, which was very clear. Now that the company has announced that the demerger process is still on, it is still not yet completed and then the next step is when they get this company listed in NYSE. So the valuation multiple that they will get for their subsidiary in NYSE will actually drive the valuation for the company.
Now what we are estimating is that their nearest competitor in insurance business in the US trades at market capital sales at around 8 to 9 times whereas we have estimated that Mastek, when it gets listed, that subsidiary even if it trades at market cap, so sales of two times, then also the stock will have the subsidiary value at around Rs 450 and then Rs 150 will be the residual business in India that will make up for Rs 550 to 600 target price. So there is a huge value unlocking preposition here, which will play out over the period of next one, one-and-a-half years. That is where we are bullish on this stock. We continue to maintain buy rating on this and the stock has also been giving these fluctuations. So that gives a better entry point.