Ashish Chugh, Investment Analyst & Author of Hidden Gems, in an exclusive interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, gave his views on Jayant Agro and ADF Foods which are his two top picks and detailed why he is bullish on these midcap stocks.

Below is a verbatim transcript.

Q: Let us talk about ADF Foods – why do you like that story?

A: ADF Foods is into food processing. It is focused mainly on export markets. The company is involved exports a number of products like chatnis, ready to eat foods, pickles. They also own a number of brands like Ashoka, Camel and Aeroplane. The company recently launched a brand which is targeted towards the domestic market by the name of ADF Sole.

Indian markets offer a very good opportunity as far as food processing companies are concerned. Their focus is mainly on the export markets and deriving roughly 85-90% of the revenues from its exports.

India is still a virgin market for this company and the introduction of organized retail has given a good fillip to food processing companies in India. If you look at the financials, in FY10 they did revenues close to Rs 100 crore, made a profit after tax (PAT) of about Rs 15.5 crore which means an EPS of close to Rs 7.5 to 8.

The best thing is that this company enjoys operating margins of close to 25%. In the first half, the sales are almost static at about Rs 52 crore and profit after tax was slightly down at about Rs 8 crore which means on a conservative basis, you can expect the company to do an EPS of about Rs 7 to 8.

They recently made an acquisition in the US of a company called Elena Foods which does revenues close to USD 9 million. This will automatically add about Rs 40 to 50 crore to their revenues and will lead to higher earnings in the future.

Elena Foods have got a USFDA approved plant in the US. The company can introduce a number of Indian products and also manufacture through that plant. It will give them better penetration into the US market. They have opportunity in the US market as well as Indian markets.

The stock has corrected from about Rs 80 to 90 to the current levels of about Rs 55 to Rs 60 and at a PE multiple of about Rs 7 to 8 which will go down once the revenues from Elena start to come in. I find that the stock looks attractive for investment.

Q: Jayant Agro had a very good second quarter. Do you expect them to break all their previous records now?

A: The opportunity for the company is very big mainly because of a very important statistic which is that India produces about 60% of the global production of castor seeds. That will give castor companies in India a big competitive advantage.

Jayant Agro is probably the only listed player in the castor sector. That is what excites us. The user industry for castor oil and castor based chemicals ranges from lubricants to pharma, food to fragrances, telecom to paints and coating. So they are used in a variety of industry segments.

If you look at the financials for FY10, sales were close to Rs 900 crore, whereas the profit after tax is about Rs 12.5 crore. In the first half, their sales are up by close to 55% to about Rs 580 crore. PAT is up by more than 100% to about Rs 13 crore which is more than PAT for the full year FY10.

We do not have any peer group as far as the listed space is concerned. But there is also a very big company in the castor business which is Biotor Industries. Biotor Industries is a private company. Not much information is available about this company in the public domain. Two years back, this company gave a minority stake of about 25% to Morgan Stanley Private equity for about Rs 182 crore, which got Biotor close to Rs 700-800 crore.

There are some press reports which suggest that Biotor maybe planning an IPO of about Rs 500 crore. Even if we assume 50% dilution, it will give Biotor a marketcap of about close to Rs 1,000 crore. Biotor is slightly bigger than Jayant Agro. A marketcap of Rs 1,000 crore for the number one company and Rs 150 crore for the number two company will see the disparity narrow down.