Check out: SP Tulsian's multi-bagger ideas for the day

Below is a verbatim transcript of his comments on CNBC-TV18. Also watch the accompanying video.

Q: Why do you like Shriram City Union Finance?

A: This is a non-banking financial company (NBFC) and if you see the recent results posted by the NBFCs whether you take the case of Bajaj Finance or maybe other NBFCs, they have been quite good. There has been positive perception for all these NBFCs and if you take larger ones like Bajaj Finance, Shriram Transport Finance and Mahindra & Mahindra Finance, they have all been ruling at a price to book of 2.3-2.5.

However, Shriram City Union Finance gets placed in the midsize category of NBFCs with a loan book of close to about Rs 7,000 crore and if you see their financial performance for FY1, they have posted total income of close to about Rs 1,300 crore and a PAT of close to about Rs 49 crore, which translate into an EPS of close to about Rs 48.50. If I go by the financial performance for FY12 considering a growth of at least 14-15%, then the company should be able to post an EPS of Rs 56 that translates into a PE multiple of less than Rs 10 or close to about Rs 10.

If you consider their shareholding pattern, promoters are holding about 53-54% stake, six large investors are holding about 41% stake so that shows their confidence on the stock. And we have been seeing these kinds of price movements in Shriram Transports since last one year. So I think that company can move towards the upper range and the share can move to about Rs 715 in next six-eight months considering its fundamentals.

Q: The small price item that you have picked is Somany Ceramics today; take us through what is good about this one?

A: Somany Ceramics have come out with good results for Q1. The company has posted a growth of about 15% and if you see the company’s ceramic tile category, it has been posting good results as well. In fact, this sector seems to have come back on the radar and if I go by the financial performance for FY11, they had posted topline of Rs 715 crore with EPS of close to about Rs 7 with the bottomline being more or less in line with expectations.

If I compare its share (Rs 45) with comparative peers whether you take the Cera Sanitayware of HSIL , it looks that the share is ruling at a PE multiple of about 6-6.5 taking the earnings of FY12. So taking all this into consideration, the share looks reasonable at Rs 45 and one can expect growth of about maybe 35-40% in next six-eight months the moment the stock gets further researched and comes on the radar.

Q: The third midcap idea is Sutlej Textiles, what is the story about?

A: Sutlej Textiles is a KK Birla Group Company. It’s an old company that has five plants, they have 250,000 spindles and the company performance for FY11 has been fabulous. Their topline was Rs 1,600 crore and the company also posted an EPS Rs 105 while the cash EPS was Rs 190 and that’s a reason that company has declared a dividend of 75% i.e. Rs 7.50 including the special dividend but the share has already gone ex-dividend. So, one should not play on the dividend strategy.

However, if you see the working of the companies, especially the spinning companies they have been facing many issues. Their results are likely to be bad but that may not be the case purely with Sutlej Textiles because they are an integrated company with 5 plants and hence, they should be able to at least post reasonable results. I won’t say that Rs 105 EPS will get repeated but one can expect an EPS of at least close to Rs 45-50 for FY12 so that translates into a PE multiple of about 4, which is slightly lower than the comparable peers of this size and this magnitude.

The company has book value per share of Rs 225, so share is available below its book value and because of this fear, the share has really corrected in these last couple of months. I feel the share has bottomed out and if one can keep a view of about 12 month, the share has the potential to move back to about Rs 275 to Rs 300. However, it’s a fundamentally strong company and I don’t think that there is much downside risk from hereon.

Q: What are you expectations from Reliance and what kind of market reactions do you expect from the passage of the BP deal?

A: As far as the Q1 result is concerned, I am not very positive on the bottomline because I am taking an estimated profit at 5,475 for the simple reason that if you go by the upstream, there is going to be a good drop even on a sequential basis on the PAT of the company because I am taking the average estimated production for the quarter, which is not more than 48 mmscmd.

There has been much noise about a sharp improvement in the refining margin, and I agree with that but I am expecting gross GRM at USD 10.3 so that would show about 23 to 25 bps increase in the EBIT of the company, which will not be very significant. It may get offset against the drop in the upstream.

Coming to the petrochemical segment, there has been drop in the polyester. If you recall in the last quarter, all the spinners have been crying due to a sharp drop in the cotton prices due to which there has been drop in the POI and polyester filament yarn (PFY).  Hence, the polyester segment has been under pressure.

So if you take the petchem, I am expecting that it should be able to post a PAT of 5,475 which gives an annualised EPS of about 67. Gaining approval on the deal has been a turning point for the company. I don’t know whether the company will really be aggressive enough in factoring this deal approval into its results or not because since they have already book the receipt of 9,000 crore in their balance sheet, they can very well recast the accounts.

However, but it all depends at what accounting method they will adopt because there are various methods in the income tax also whether the amount recede will be reduced as a block of assets or it will be treated as a separate company or the AOP. But I am presuming that the amount to be receive by the company from BP will be shown as amount getting reduced from the block of assets and if that happens and if the company opts to present the accounts on a recast basis because ultimately eventually they will have to do maybe at the end of Q2 so in that case the PAT can increase to about 6,000 crore plus. So there are two sets of accounts but if I take the normal working presuming that the BP effect will not be factored into the results then PAT is estimated at 5,475 crore.

Q: We were talking about fertilisers and there is some talk about government buying back fertiliser bonds worth Rs 7,000 crore, the group of ministers moving on urea next week. How high are your expectations pegged?

A: This bond buyback has to happen. If you recall couple of months back, there was news of some liquidity crunch from the government’s side, and this was held back. But I think that is overdue and now because they have all been stacked with these kinds of bonds, a discount of 6-8% is prevalent on that.  If you have 6000-6500 or maybe 8000 bonds getting bought by the government, that should see notional loss of Rs 500 crore getting avoided by these fertiliser companies.

I still have my doubts on the urea policy. I don’t know whether they can really be able to come out with the clear cut NBS formula because in urea there are a lot of arguments going on in respect of the feed stock that how to set the subsidy criteria for the gas-based plant as well as for the naphtha-based plant. So I have my doubts whether there will be a formula and even if they are trying to make it, it will be a very complex formula, which may prove negative for some of the companies like NFL, which are largely tilted with feedstock as naphtha.

So I have my reservations, I don’t think that one can see the clear-cut NBS formula as we have seen in case of complex fertiliser coming in for urea but since there has been lot of deliberations, the committee has been interacting on these points. So, let’s see what kind of formula they come out with but I don’t think that in the true sense, you can say that decontrol of urea has happened.

Q: GSPL did very well on Friday?

A: If you see last week, we had a negative report on GSPL coming from an institutional brokerage and because of that the stock has corrected to Rs 93. I don’t see any reason for taking a negative call on the GSPL because if you see the kind of growth, the company has been gradually posting their gas carrier volume, which will increase in FY12.

They have a strong presence in north Gujarat but I don’t know what has happened. On Friday, we have seen the stock moving up by 10% so sometimes you get too confused with these kinds of reports coming in on one hand that you are giving a negative calls, stock gets corrected because it has been all along holding Rs 100 level.

However, if you see the share price pattern of the stock for the last three-four months, it collapses to Rs 93 because of that report. Moreover, the fall is a result of the renewed buying interest because I cannot say that this is purely a short covering. I am taking a fundamental call on the stock and maybe technically it has given a bounce back. Hence, I won’t be calling it as a buy at Rs 108 but I am holding my positive view on it over 6-8 months time horizon.

Q: A word on Praj Industries . Did you take a look at those numbers?

A: The number has been good but I won’t be taking a buy call on the stock because if you take a fundamental call, the share is ruling at a PE multiple of 30. We keep seeing these kinds of trading bumps coming in into the stock; it could be the results or maybe some technical buy. But I won’t be having my fundamental call and I think that maybe the profit booking, which can bring down the price to buy about Rs 7-10 in next month or so.

Q: You were talking about the results of Reliance but do you see stock going up 3-4% on the back of the BP deal going through?

A: I don’t think that it can breach Rs 900 on intraday but I am expecting the stock to move to about Rs 890 because that is a view I gave post the Reliance-BP deal. Hence, it should have price level of Rs 890-895 but I think the moment it crosses Rs 89,5 they will see the profit booking because nobody wants to sit ahead of the result.

I have been taking a little bearish call on the expectations on the result front because as I said if you see the Q4, that has been the best results of the company, 5,375 crore PAT and I am just adding 100 crore to that as I explained earlier by taking the net of all the petrochemical, refinery, oil and gas. So I will be a bit cautious but I am expecting the share to move to about Rs 890- 895 intraday.

Q: Do you track Rallis India that has also gone up post its earnings?

A: Rallis India has given good results and traditionally, the Q2 result of the company has always been good so if you take a call on Q1, the kind of results they have posted I think that Q2 should be with a PAT of close to about Rs 55 crore and that will give a booster to the stock. Post split, we have been seeing renewed buying interest coming in into the stock, so I won’t be surprise to see price of Rs 180 for this stock in next couple of months because I have been holding my positive view on it.

Q: Is Petronet LNG good for more or do you think it’s now getting overbought?

A: No, I think it is a clear cut case of overbought. We have seen a lot of exuberance. I don’t think that it deserves to rule at more than Rs 170 because generally the stock trades in a range of Rs 10 so I have been taking a call at Rs 160 to Rs 170. So the stock should take correction to close to about Rs 170 and I am keeping a view of Rs 160 to Rs 170 as a trading range for stock maybe for next 15-20 days.

Disclosure: I have no personal holding in any of the stocks discussed

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