Moneycontrol
Jun 07, 2017 11:05 AM IST | Source: CNBC-TV18

Here are fundamental ideas from SP Tulsian

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his views on specific stocks and sectors.

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his views on specific stocks and sectors.

Below is the verbatim transcript of the interview.

Latha: First up, how did you understand this Adani Power doing a slump sale of its Mundra Power plant to the subsidiary, you think we should expect in future some kind of a sale probably absorbing the loss or something, a haircut?

A: If you take a call, I think that after struggling for maybe since inception and post the Supreme Court judgment, probably the promoters have realised that there is no point in continuing with this project which is a very significant one, of about 4,620 megawatt having an investment of over maybe Rs 24,000-25,000 crore. If you take a call, the 93-94 percent of the turnover is coming in from this company and we have seen the company coming into a very precarious situation.

In fact if you recollect this ultra-mega power projects and this one power project by the Adani which is not an ultra-mega power project but again falling in that same category of 4,000 plus megawatt has really not worked well. We have seen Krishnapatnam getting called off, only Sasan by Reliance Power has been taken off and even the ultra-mega power project by Tata Power in the same region is also struggling.

So, I think that probably management must have accepted that there is no point in continuing this project, let us call it off and maybe take a hit which will be in my view at least minimum it will be anywhere between Rs 8,000-10,000 crore. However, I think that that seems to be a logical move on part of the company or maybe of the group that if you can’t turnaround a company, there is no point in continuing with the losses which they will keep incurring on this project.

Anuj: What about Adani Enterprises? We discussed it in Closing Bell also yesterday, up 9 percent, how would you approach it?

A: You can call it again, call it with the Adani Power that see the overall management bandwidth. Every management has the shortage of the management bandwidth at the top level and if you see that, about maybe few of your people are getting diverted for Adani Power because even as I said, that this project is of Rs 25,000 crore, why to have these to keep struggling with loss making projects and shift the focus from other lucrative project.

However, coming on the Carmichael project that is in Australia and looking to the management commentary, now I think that this seems to be very much committed that things will take off. If you see the background, even Australian government may seem to be quite interested that this kind of thing should take off. Obviously every country, if you have investment of anywhere between USD 15-20 billion and the kind of employment which will get generated, but you have these kind of problems practically prevailing in all the countries, maybe small provinces, small group of people will be taking or may be raising the issues on environment concern.

However, the kind of statement which has been issued by Gautam Adani for this Australian project, the Carmichael project, that seems to be quite assuring that yes the promoters or the management is very much committed and the project will take off. So, probably both this developments having taken place in this last couple of days, exiting from Adani Power and taking up Adani Enterprises’ mining project of USD 15-16 billion are really promising and positive move on part of the group.

Sonia: You have identified a stock for us, Multibase, what is the story here?

A: This is a multinational company in which Dow Corning is holding 75 percent stake in the company and company is making the thermoplastic elastomers, making polypropylene compounds. Apart from that, they are also into silicon and thermoplastic master batches. All these products are used by automobiles, engineering, healthcare, stationery, personal care, personal hygiene, and they have tremendous potential for getting the conventional products like metal and all that replaced with these products.

The company as I said is multinational company and they have a manufacturing plant at Daman near Gujarat and there they have a single plant but apart from that, they have the technology backup from their parents. Apart from that, they have their indigenous strong R&D network also here in India and they keep inventing one or two products every year. Polypropylene compound and thermoplastic elastomers are really seen to be having good potential which are getting replaced into the automobiles as I said as a metal substitute for the low weight or maybe for the safety consideration.

If you see the performance of the company, it has been continuously improving every year, from FY15 to FY16 and in FY17. In FY17 they had a topline of about Rs 90 crore, EPS rose from sub Rs 8 to Rs 10 plus, that means they have shown a growth of about 25 percent. Very clean balance sheets on a net worth of about maybe Rs 60 crore, they have Rs 25 crore lying as cash in bank balances with zero debt, debt free balance sheet. So, I am expecting that probably the product profiles which the company is into having a huge potential. If you see the crude remaining soft because they are all crude derivative products, as I said, polypropylene compound and all that or maybe the silicon and master batches which are used in automobiles, personal care, they are having huge potential going ahead.

I am expecting that probably for FY18 company should be able to again post a growth of about maybe 10-12 percent on topline but bottomline will yield results and maybe showing an EPS of closer to Rs 13 which translates if I net off cash then translates into an P/E multiple of about 25 which seems very low for a multinational company and the company having entry barrier. So, taking all this into consideration, I think this a consistent and safe stock to have in the portfolio and one can expect a target of Rs 430 in next six months or so.

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