Should you subscribe to these IPOs?

Excerpts from Bazaar on CNBC-TV18 Watch the full show » Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Investment Advisor SP Tulsian gives his views on the recent IPOs on the block.

In his view, one should subscribe to C&C Construction. He expects the company to post an EPS of close to Rs 22 for FY07, which translates into a PE multiple of close to 13.14. So Tulsian finds the issue quite interesting.

As regards Euro Ceramics, he considers it a reasonable issue since the price band of Rs 150-180 looks a bit stretched. Tulsian is also positive on Mudra Lifestyle.

He is also impressed with Mindtree's issue and the fundamentals of the company, In fact he expects its performance to go on the lines of Tech Mahindra, post listing.

Excerpts from CNBC-TV18's exclusive interview with SP Tulsian:

Q: What is your view on C&C Construction?

A: C&C Construction is a good company. The best part that I like about the company is the bottomline or the EBITDA margin. The net profit margin is generally anywhere between 5-7% for all the construction and contracting company.

But this company has been posting a net profit margin of close to or in fact in double digit more than 10%. The same trend is likely to get maintained even for FY07 onwards also. Even if you see the expanded equity part of about Rs 18.26 crore, of that 69% will remain with the promoters and even FY07 is likely to post a turnover of close to Rs 300 crore.

If you take the overall fundamental valuation call, the company may post an EPS of close to Rs 22 for FY07 and that translates into a PE multiple of close to 13.14. So the issue looks quite interesting, and the best part about the company is the higher profit margins on all their contracts. So it's a very good issue and my advice is to subscribe.

Q: Euro Ceramics, how are you rating that one?

A: Euro Ceramics has lately built up its brand equity, and now they carry a good name in the vitrified tiles market, now they are going into the sanitary ware. The sanitaryware market is very crowded and I do not know whether they will be able to make a dent in that market or not. The margins of all other players of those who have been established for quite a long time, has been shrinking.

But I do not know how much they will be able to capitalise on the Euro brand value. I treat this as a reasonable issue because maybe the price band of Rs 150-180 looks a bit stretched.

Q: What about Mudra Lifestyle?

A: Mudra Lifestyle, in fact, is a very interesting project. If you compare this with Bombay Rayon - they belong to the same family and their project model is also the same - it is identical in all respect in terms of the capacity, capital and cost.

So Mudra Lifestyle appeals that, yes it is a very good thing but Bombay Rayon has been witnessing more of the momentum play. I do not know whether they can really replicate on those lines or not. But even if I go on the standalone basis, Mudra Lifestyle project appears to be good.

The project cost is about Rs 178 crore. They are availing term loans of about Rs 100 crore, which qualifies under TUFS (Technology upgradation Fund Scheme) on which they will receive 5% interest subsidy and even the promoters holdings of 55% is quite reasonable.

The expanded equity is about Rs 36 crore, which is again very low as compared to Bombay Rayon. I am talking the comparison of this company more with Bombay Rayon, and if I do that, then definitely this issue is interesting.

Q: What do you make of the valuation at which Mindtree is coming in?

A: Mindtree have recorded a compounded annual growth of more than 85% in the last three years and obviously IT is the flavour of the market nowadays. Even in the current year, 50% growth of the industry can be expected and probably Mindtree would surpass that close to 60-70% growth.

If I take that as a call, the turnover of FY07 could be anywhere between Rs 600 crore with an EPS of Rs 25 plus. So if all those things are factored in, then definitely the issue looks very attractive.

In fact I am very much excited by the fundamentals of the company and would not be surprised if the performance of this company also goes on the lines of Tech Mahindra, post listing. So again, I am quite impressed with the issue and the company's fundamentals.

Q: What have you made of the very minor export sops which have been held out by the government for the sugar companies? Do you think if they are material at all, will help the stocks materialize?

A: In fact the government is trying to put some sweetener but now it is too late because even in the domestic market, the prices have fallen to about Rs 13.50 to Rs 14. In the export market also you have the same realisation.

Though the talks are going on that, maybe the government will provide some warehousing and interest subsidy, which would cost the exchequer to the extent of Rs 400 crore. But there have been differences between the Agricultural Ministry and the Finance Ministry also.

If you take a fundamental call on the sugar industry, I think the government is more responsible for killing this industry and I don't think all these measures will really help - treating your export as a free sell quota or maybe allowing 3 lakh tonne of export, or even providing minor subsidy in the form of storage or interest cost to the extent of 300-400 crore. I think the basic parameters of the industry have changed and I don't think the viability of the industry can come back atleast in this season. So the fundamental call got delayed atleast for one year or so for the sugar industry.

Q: Even at these levels, would you not go out and buy any of these sugar stocks?

A: I have been maintaining my call since my clients and I have been heavily invested into the stock and I have been taking call for the last six months to get out. But some of them have been saying that they are making losses, I would say at least you are losing the opportunity cost.

Probably sugar stocks, in time to come, for the next six months may not be able to show any appreciation from these levels. I am not going for the trading calls on an intra-day or intra-week basis where you could earn about 2-5%.

But if I am really taking a long term call for next 4-5 months, I don't think that even these price levels could be sustained on the market for any sugar stocks because in the time to come, maybe the March quarter and the June quarter, would be worse than what it has been for the sugar stocks in December when the full season was on.

So definitely, my advice is that it is better to remain invested, probably you will be losing on your principal, apart from losing the opportunity cost, which you have in terms of other investments available in the market.