Below is an edited transcript of SP Tulsian's interview on CNBC-TV18
I like Escorts because December was their first quarter and in their Q1 numbers they have posted top-line of Rs 1030 crore. They have posted a profit after tax (PAT) of Rs 28 crore against Rs 54 crore which they posted for whole of FY12 that is year ended September 2012 with EPS of about Rs 2.40 while the EPS for whole of FY12 was sub Rs 6.
If you see their tractor, agriculture machinery, their auto component that is shock absorber and even railway, construction machinery. All the divisions in which they are operating are showing some traction, some improvement. Ahead of the Railway Budget, same thing will be seen in the railway equipment. Their auto parts which is a shock absorber will also see some improvement. Even in their tractor, the margins are likely to improve.
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Overall, even their debt position is now comfortable and the company has brought it down to Rs 800-900 crore. Taking all this into consideration, if the company is able to post an EPS of close to Rs 8 also, about Rs 2.40 have already been posted for Q1, the company should be able to post an EPS of close to Rs 8. This share is now ruling at PE multiple of 7-8 times.
I am not including the real estate assets and all that people have been talking and factoring in into the valuations because company has huge tracks of land in Faridabad. It is a case of smart improvement in the performance in Q1 which is likely to continue in the next two-three quarters. One can now buy the stock because after the results the stock has moved to about Rs 70-71, but corrected back yesterday to Rs 68. So, this makes a good entry point for a target of about Rs 85 in next six months.
On Atul Auto
The company is making three-wheelers and all three-wheelers run on diesel, CNG, PNG. They have their plant at Rajkot with a small capacity of 24,000 vehicles per annum. If you see the financial performance, there is a feeling whether such a small company will be able to show any kind of growth?
We feel the saturation has reached, but considering the other overheads and other expenses of the larger players and huge advertisements, huge competition amongst them, sometimes these companies stand to gain and that is reflected from their financial performance as well.
Going by their nine months performance on a top-line of about Rs 275 crore against FY12 top-line of close to Rs 300 crore, they have surpassed the profitability that the company has earned for whole of FY12. The FY12 EPS was about Rs 16.50 on the enlarged equity which has increased to Rs 11 crore plus after the issue of 50 percent bonus. One bonus share for every two shares held. They also have an EPS of Rs 16.50 for the nine months of FY13, which means already we are seeing a 25-30 percent growth in the company’s margin or in the company's EPS.
Looking at the EBITDA margin of the company, it is respectable in double digit closer to 11 percent. May be volume growth will not trickle much in the company. If you see the volume growth or may be a top line growth of about 10 percent, that may result in bottom-line growth of about 15-16 percent, on top of it the debt free status of the company. So overall, the stock is an interesting play, I am not saying that one should expect good returns in a short-term, but if you keep a time horizon of about six months you can expect a price of about Rs 260 or so.
Disclosure: I have no holdings in the stocks discussed.