Multibaggers under Rs 100? Why Gaurang Shah is betting on these 2 stocks

"The rationale behind liking NCC is purely on fallback of the diversified activity that NCC has within the construction universe. It has one of the strongest order books and this sector overall was kind of a drag for a pretty long period of time with respect to construction and infrastructure. We like IDFC First Bank for the kind of improvement that we have seen on quarter-on-quarter or year-on-year basis," says Gaurang Shah, Senior VP, Geojit Financial

How does an investor benefit by investing in a two-digit stock? We are not talking about penny stocks. How are investors likely to get better returns by investing in two-digit stocks rather than a five-digit or a very high value stock?
A lot of times, the most gullible pack of investors, when it comes to getting sucked in by certain stories floating in the market, are retail investors. They are the one who always want to be the first one to identify the multi-baggers which are supposed to be single digit-double digit stocks. Then the story unfolds in the form of capital getting damaged, investment value getting eroded by 40%, 50%, 60%, 70% or more.

It is not like you can buy anything and everything in the universe which is in single or double digit and expect that to be a multibagger. You can fall flat on your face not once, but many times in adventuring into these kind of ideas. But at the same time, there are certain stocks which have the capability of turning out to be a reasonable good investment bet, given the low valuation because of many reasons – be it management, be it the overhang on the sector, be it underperformance from the company or competition or otherwise. But definitely, there are opportunities.

So one needs to put the double digit investment not under a magnifying glass but under the microscope and then take the initiative.

It is very important to understand and know what investment you are making and in which company. So there are opportunities. It is not like it is not there, but you need to be extremely careful when you are investing into double digits. Along with that, a high risk appetite is needed as well.

What makes you bullish about NCC? During the peak of Covid, it was trading at sub 40 levels. It is now close to Rs 100 mark. Now the order book is also looking healthy at Rs 40,000 crore and it has a lot of marquee names already as far as shareholding pattern is concerned right from Ms Rekha Jhunjhunwala to ICICI Prudential, HDFC Life etc. What is the thesis going forward and what kind of upside do you see on this one?
The rationale behind it is purely on fallback of the diversified activity that NCC has within the construction universe. Like you rightly mentioned, this got one of the strongest order books and this sector overall was kind of a drag for a pretty long period of time with respect to construction and infrastructure.

I was listening to the statement of the management last week and we were quite pleased to listen to them in terms of what their plans are going forward from here on. This only reinforces our commitment and confidence in NCC. Not to forget, at state level and at the central level, all the governments are trying to speed up infrastructure-related construction activities to optimise on those opportunities.

Our sense is that with the kind of order book that NCC has, the execution that they have shown and expecting that execution to pick up going forward from hereon thereby translating that into revenues and profitabilities on the balance sheet. The only issue is the runup that we have seen, especially over the last week or fortnight.

One should not rush into the investment ideas that we are going to give today immediately. Start nibbling into them and that means start allocating some small part of your capital that you want to invest in and as and when you get corrections, I think that will be a great opportunity to add to those stocks.

We believe NCC will have tremendous performance on the fallback of execution of order book and the run rate in terms of realisation on the balance sheet will also improve. Our sense is that not only in the state of Andhra Pradesh and Telangana, but elsewhere also they are likely to get many more orders, thereby translating them into earnings pretty soon.

In the case of NCC, as of now we are working with a target price of Rs 110 with whatever we have seen uptil now in terms of order book and earnings. In case that improves, then by default, the targets get revised upwards and one can start nibbling into it. Do not put all your money at one time.

Let us talk about your second pick. I am quite intrigued by seeing the name of IDFC First Bank from you. Is this because that is one of the only stocks available from the private sector space which is in double digit? There are a lot of options available in the public sector banking names and even in private space. There are Ujjivan Small Finance Bank, Equitas Small Finance Bank and even Yes Bank for that matter.
I would not dare and touch the third one to be very honest with you. There were opportunities in the private universe sometime back; even Federal Bank was sub 100 a while back but now it is at 130 plus kind of thing.

So what has happened over here in the banking sector is especially after last week’s commentary with respect to the advances, deposit and current account savings account, CASA number and the outlook in terms of credit demand that is going to unfold. In fact, we have been covering IDFC First Bank for a pretty long period of time. We continue to maintain that even when there was a little bit of distress on the balance sheet with respect to the gross and net NPA especially with respect to a couple of large accounts which had gone bad.

But we maintain confidence in the management and the result is that now things have turned around for good. So we like IDFC First Bank for the kind of improvement that we have seen on quarter-on-quarter or year-on-year basis. The management’s verbatim post the second quarter earnings has been pretty strong in terms of business outlook and growth going forward from here on. They have been continuously and seriously focussing on bringing down the GNPA number and thereby provisioning coming down.

Of course there’s opportunity for the banking sector overall with the credit demand picking up despite the fact that there is a little bit of elevated interest rates. So things look pretty strong with respect to certain accounts which have gone bad. There is positivity over there and that has been translated into numbers also.

Even in the public sector banks, there are a lot of names that we are positive on. Two names that you mentioned – Equitas and Ujjivan – we do have a positive coverage over there. But I would restrict myself to one name and that is IDFC First Bank. Here again we are looking at a target of about Rs 78 in the current backdrop of events and numbers that we have seen. I am quite sure that with a positive outlook on the banking sector, I do not think IDFC First Bank will be left anywhere behind, it will be one of the performers.