Moneycontrol
Dec 21, 2012 02:28 PM IST | Source: CNBC-TV18

Mutlibaggers: SP Tulsian picks 2 regional construction cos

SP Tulsian of sptulsian.com has picked up two regional construction companies — Vijay Shanthi Builders and Ganesh Housing Corporation as his multibaggers for the day.


SP Tulsian of sptulsian.com has picked up two regional construction companies — Vijay Shanthi Builders and Ganesh Housing Corporation as his multibaggers for the day. His target for Vijay Shanti Builders is Rs 30 and Rs 160 for Ganesh Housing Corporation.

Below is the edited transcript of Tulsian's interview to CNBC-TV18.


Also read: Houseviews: Brokerages call on 3 largecap stocks


Q: Why have you picked up Vijay Shanthi Builders?


A: This is a developer in and around Chennai. They are purely into residential development only. They have completed 275 projects with a total area of close to about 5 million square feet. Infact, they are known for their quality, timely completion and the comparable loading or the differential between the saleable area and the carpet area. So, they have customer loyalty and those who have been attached with this developer for ages, you can see the next generation also buying flats in similar projects.


They have a good pipeline and they are purely focusing only on the residential projects. They are not into commercial construction. They are not into shopping or any kind of special economic zone (SEZ).  So, their focus continues to remain and right now, they have 9-10 projects under the pipeline. They keep coming out with small projects with the area of about one-two lakh square feet in each project. They focus on that and then sell the area.


If one goes by the financial performance of the company, the market cap of the company is presently at Rs 50 crore against the net worth of close to about Rs 120 crore. For first half of FY13, the company posted a top-line of close to about Rs 75 crore and posted an EPS of close to Rs 2.30. While the same EPS in FY12 was about Rs 3.60. So, one can comfortably say that the EPS for whole of FY13 is likely to be Rs 4.50 or closer to about Rs 5 or so.


Going forward, I am expecting that to move to about Rs 6 for FY14.
So if you take a call, the share is ruling at a PE multiple of 3, price to book of 0.3-0.35. Since they have been quality developers and the kind of run up which we have seen recently in all the real estate stocks, some of these kind of stocks have left out. Infact, the focus has entirely been on the Bangalore, Mumbai and NCR region based realty stocks. However, these stocks have not really participated in the rally. So, I am holding positive view. I am not saying that the share can move to Rs 30. That may happen, but one can keep the price target of Rs 25 on the stock with a view of about six-eight months.

Q: What about Ganesh Housing Corporation?


A: Ganesh Housing Corporation is a similar story on the lines of Vijay Shanthi. Ganesh Housing Corporation is purely into residential development. It is one of the largest and prominent real estate developers in Gujarat. Vijay Shanthi has been focusing only in Chennai and Ganesh Housing is also a regional player.


They are not only focusing in the city of Ahmadabad, but they have presence in and around Gujarat, because you have may pockets which are really catching up very fast in Gujarat. They are known for their quality developments. They have a good track record. They have completed about 16 million square feet of construction and presently they have six-eight projects.


Generally, they are into little larger projects, maybe area of three-five lakh square feet for each projects. So, the company is planning to develop close to about 38 million square feet based on the land holdings they have, over the next eight years. Looking in their track record, this looks possible and the best part is, the operating profit margin of the company is very consistent. Infact, that has been the case over 50 percent.


If you see the record of the last two-three years for FY12, the operating profit margin was at about 53 percent. That was about Rs 106 crore on top-line of Rs 200 crore. The first half results showed the operating profit margin improving to 56 percent, at Rs 50.5 crore


So, the performance has been showing a consistent improvement. In FY12 the company posted an EPS of close to about Rs 13 and for first half the company posted an EPS of close to Rs 5.50. As second half is generally better for the company, they should be able to again give an EPS of close to Rs 14-15. If you go by debt also, the company doesn’t have much of the debt. It has very small debt which is largely availed by the company for working capital finance.

Like I said, the execution capability and timely completion of the projects with full satisfaction to the flat buyers, seems to be the key for this company. So, considering all this and in the last couple of days, we have been seeing the buying also happening in the stock by the informed circle or by investors having little longer horizon. Taking all this into consideration, one can expect the stock price of about Rs 160 in the next six months.


Disclosure: I have no holdings in the stocks discussed.


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Q: What did you make of the way the Adani Group stocks moved yesterday? How do you think their journey will be in the next few days, once the offer for sale (OFS) is done and with the Gujarat election result behind us?


A: It was shocking and contrary to the market expectations. I don’t think that anybody has really expected all trios – Adani Power, Adani Port and Adani Enterprises correcting anywhere between 3-8 percent. So, I can understand a lot of trading positions in anticipation of the positive effect on few Gujarat stocks were expected by the market. Companies like Gujarat State Petronet Limited (GSPL), Gujarat Mineral Development Corporation (GMDC) and Adani Group stocks would be affected by the news. 


A lot of trading positions have been built up and maybe some profit booking in the start of this session, led to the liquidation of those long positions. So, that was definitely surprising, but yes, going forward I am keeping my positive stance on Adani Port.


For Adani Enterprises OFS, they have set the floor price at Rs 282. So, that indicates that proper homework has been done. If 4 percent premium has been set at the close price, obviously none of the OFS is seen to be getting flopped in the recent times, because that seems to be the homework done by the investment bankers along with the promoters.


So, I am expecting that the bounce back will come in Adani Port and Adani Enterprises. I am not too sure about Adani Power because of the kind of problems they are still facing with imported coal. The problems are not likely to get resolved soon too. We may see some trading bump coming in Adani Power, but I am keeping my positive stance on Adani Enterprises and Power.


Q: People made a lot of money betting on the fact that United Spirits would get a large stake sale going a year back. Do you think you can approach Kingfisher Airlines like that and make money?


A: Not really. Maybe that opportunity existed when the share was ruling at about Rs 9-10 because I am expecting a good amount of waiver from the bankers if the company or the promoters offers to make them upfront payment of Rs 3000-4000 crore. If that comes in, that will bring down the enterprise value. We are getting fillers that Jet Airways is getting an enterprise value of close to Rs 23-25,000 crore.

Once the airlines resumes the operations, they can quickly grab a market share of maybe about 14-15 percent or so. So, it all depends on the enterprise value game, how much they will be able to take the waiver from the bank, how quickly they make the suppliers liability, pay the employees due’, tax dues and all that. So, yes, the upside definitely remains, but I won't be keeping a target of beyond Rs 20. United Spirits’ kind of explosion in the valuations of Kingfisher is definitely ruled out.

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