Watch out for these scrips

OUTLOOK 2007

The top stock picks for 2007 recommended by brokerage houses UTI Securities, Sharekhan and Networth Stock Broking are Oriental Bank of Commerce, Bank of Baroda, Kewal Kiran Clothing, Aditya Birla Nuvo, Thermax, Grasim, Ratnamani Metals & Tubes, Sasken and Indoco.

Milind Pradhan, head of equities at UTI Securities, recommends large-caps Oriental Bank of Commerce and Bank of Baroda as a buy with a medium term view.

Oriental Bank of Commerce enjoys a very high yield on investments, which is not likely to come down very sharply as two-third of investments are maturing after five years.

The fee-based income has undergone spectacular growth of 97 per cent during H1 FY07 and the same is expected to grow at a healthy pace going forward.

Pradhan sees a good upside for Bank of Baroda as the bank has realigned its focus on improving its core business operations.

A healthy SLR cushion will result in the bank being able to fund its aggressive business expansion plans. Good profit growth and improved performance is likely to lead to an EPS of Rs.33.6 and RoE to improve to 15.2 per cent in FY08.

From the mid-cap space Kewal Kiran Clothing (KKCL) is a favourite of Pradhan as they are the owners of well-known men's wear brands "Killer", "Lawman", "Easies" and Integriti".

The company is expanding through its network of own stores "K-Lounge" and will be launching its women's range under "Killer" in January 2007.

The favourite stock picks for the new year from Sandeep Nanda, head-research, Sharekhan are Aditya Birla Nuvo, Thermax and Grasim. Aditya Birla Nuvo is a unique play on four of India's most exciting sectors: garments, insurance, telecom and IT/ITES.

It has adopted the perfect recipe for growth""mint money from the cash-rich businesses of rayon, carbon black and fertiliser, and focus on the high-growth business of garments, telecom, insurance and IT/ITES. At the current price of Rs 1,233, Aditya Birla Nuvo is trading at a P/E of 23.2x FY2008 estimated earnings.

Thermax is another stock, which has a good upside according to Nanda. Favourable government policy initiatives have increased the attraction of power plants, leading to increased business for Thermax.

The company has a orders of Rs 2,973 crore, which is equivalent to 1.8 times FY2006 revenues and ensures visibility of its earnings. Better operational efficiencies along with cost management measures will lead to a 310-basis-point expansion in its margins over FY2006-08.

Grasim, one of the largest cement producers in the country with a capacity of 14.5 million tonne a year and also the largest domestic player in the viscose staple fibre (VSF) industry with a significant presence in the global VSF market, is another favourite favourite at Sharekhan.

Grasim is expanding its cement capacity by 8 million tonne and increasing its VSF capacity by 49,000 tonne. Janish Shah, head-research, Networth Stock Broking, believes Ratnamani Metals & Tubes is an attractive investment proposition as its improvement in costs are supported by strong demand for its products.

It is a single point source for welded and seamless stainless steel pipes and tubes, carbon steel longitudinal submerged arc welded (SAW) and spiral SAW pipes.

Sasken Communications and Indoco Remedies are Shah's other favourite picks. Sasken's business is expected to grow at 55 per cent CAGR for the next two years.

The stock quotes at a PE of 27.7 times its FY07 estimated EPS and 16.6 times FY08 EPS. Indoco Remedies has a firm footing in domestic formulations business. At the current price Rs 366, the FY07 estimated EPS of Rs 48.58 is discounted 7.58 times.