Hot Chips - Stock Recommendations For Your Portfolio

DSIJ selects 2 aggressive stocks picks in every issue, with a 7-15 day horizon based upon the bullish trend during that period. For this issue, we are recommending companies from the Agriculture and Power sectors.

MCLEOD RUSSEL INDIA
BSE CODE: 532654 | Volume: 8811 | CMP: Rs 322

With a production capacity of more than 100 million kg, Mcleod Russel India is well poised to capitalise on the growing demand for Indian black tea in the global markets. The company is the world’s largest tea producer, with a total area of 38758 hectares under tea cultivation. The rising demand-supply gap of tea due to a production shortfall in the key tea exporting countries has created a favourable scenario for the domestic tea producers. It is expected that the average realisations of the company are likely to witness a growth of Rs 12-15 per kg.

The increase in the realisations will help the margins to improve by around 130-135 basis points ahead in the year. With expectations of a strong cumulative operating cash inflow, it is expected to improve the dividend payout or build a war chest for potential inorganic initiatives in the future. One can look at the scrip from a medium-term perspective.

[PAGE BREAK]

CESC
BSE Code: 500084 | Volume: 11789 | CMP: Rs 302

With a focus in three segments, viz. power, retail and property, CESC, a flagship company of the R P - Sanjiv Goenka group, is well poised to witness gains in the medium term. The company has 1225 MW of generation capacity and provides electricity distribution services in the Kolkata circle. Unlike other power utilities, CESC is protected from the deteriorating financial health of SEBs to some extent, since it buys power from them to meet the increasing demand for its distribution business.

The West Bengal Electricity Regulatory Commission (WBERC) had recently issued a tariff order allowing an increase of Rs 0.69/unit, which is to be recovered over the next four years. The tariff increase will reduce concerns on CESC’s Kolkata distribution business. FDI in retail would also be a key catalyst for the stock. Furthermore, its stable RoE in the regulatory business and its foray into merchant power post expansion along with its coal linkages for expansion till 2015 will improve the cash flow. One can look at the scrip from a medium-term perspective.

The scrips in this column have been recommended with a short-term investment horizon in mind and carry high risk. Therefore, investors are advised to take into account their risk appetite before investing, as fundamentals may or may not back the recommendations.