Multibagger ideas: SP Tulsian identifies 3 stocks

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

SP Tulsian of sptulsian.com has identified three multibaggers that have the potential to give spectacular returns over the medium to long-term. The stocks he is bullish on are WABCO-TVS, Welspun Projects and HOV Services.

On WABCO-TVS :

WABCO-TVS makes conventional and advanced breaking system as well as air compression products. TVS does not hold any stake in the company. The entire 75% promoter equity is held by WABCO of Belgium and they are catering mainly to the CV segment with two plants in Chennai and one plant in Jamshedpur and 85% of market share in the CV segment is held by them in the OEM space and 75% in the replacement market.

So going by their market share and going by the critical product, they have a very good pricing power and that has resulted in them maintaining an EBITDA margin of about 23% year-on-year.

If you look at it quarter-on-quarter (QoQ) also, every quarter sequentially they have been able to ramp-up their EBITDA margin by about 10-20 bps. So they are very conscious of maintaining the topline. They reported a topline of about Rs 650 crore for the nine months ended December with an EPS of about Rs 50.

It is a debt-free company and probably in FY12, I won't be surprised to see the EPS moving to about Rs 85-90. So all these things makes the multinational company a very good buy. It is available at a P/E multiple of close to about 10. This share moved to about Rs 1,350 maybe in the month of October 2010 when we had seen the market being very bullish. So overall taking all this into consideration, the downside seems very limited. But it can give 40% returns in the next six-eight months' time.

On Welspun Projects :

There has been a change in the management of the company. The Welspun group has subscribed the shares at Rs 123, the present book value of the company is at Rs 130 but the share has been ruling at Rs 83 and strangely post change of management, when the company or the promoters or the acquirers had gone ahead with the open offer, nobody had tendered their shares at Rs 130 because the share moved up to Rs 180-200 merely on the ground that Welspun has acquired this company.

If you look at the networth of the company, when the new promoters came into this company, they subscribed the share at Rs 123. They pumped in about Rs 210 crore into the company and right now it has a networth of more than Rs 500 crore, of which Rs 300 crore has been largely used for BOT projects, which I think that the new management may not be too keen to run BOT projects because their focus is more on the oil and gas sector where they have their specializations.

The promoters are even expanding their presence in this space by acquiring some closely held companies also. So in the future, this could be just the platform for them to ramp it up as a big infrastructure company focusing more on the oil and gas pipelines because the promoter of this company - Welspun Corp - is holding the entire 75% stake through their step down subsidiary Welspun Infra.

So overall taking this into consideration, the growth expected on the sector and the financials of the company, I think at Rs 83, there is very limited downside. But once you see these announcements or the moves happening on the financial front by the company, the share can move to about Rs 125 maybe in the next six months time.

On HOV Services :

HOV is an end-to-end BPO company catering to the BFSI, retail, publication, healthcare segments. This company has a strong presence in India, China, Mexico, North America and the total people employed by the company is about 11,000.

If you look at their financials for the first half, they have posted a topline of Rs 375 crore on an equity of about Rs 12.5 crore and the PAT was close to about Rs 37 crore. That means they have posted an EPS of about 30 for H1. So FY11 is likely to have an EPS of Rs 60 which has been confirmed by the management also in their conference call.

The management has managed to initiate some good moves. In every quarter they have been declaring an interim dividend of 20%. They have already declared two interim dividends of 20% each. The board of the company will also be considering a third interim dividend along with Q3 results, which is scheduled on January 27. So if we feel that the same trend continues, which has also been indicated by the management, we can expect 80% dividend from the company on Rs 10-8 dividend on a market price of Rs 96, which gives you a dividend yield also of about 7-8% in this time.

Except for some preferential allotments made by the company to their one overseas subsidiary which they have indicated that they will be converting that at a price of about Rs 250 per share, overall the financials of the company are very much in place whenever we see the renewed interest in the share moves to about 140-150 and then recedes maybe with the passage of time.

But I think based on the dividend yield, expected EPS of Rs 60 on consolidated basis for FY11 and the 80% dividend as I said earlier, all these things makes this stock a very good buy because it is available at a P/E multiple of close to 1.5 or maybe 1.6.

On HCC :

It seems that there is no more downside seen because we are now more or less reaching a consensus that probably the ministry of environment may go for a small penalty and the stabilization fund, which would cost the company about Rs 100 crore. So taking all this into consideration, I don't think that the share has a risk of falling below Rs 40.

Once all these things come into the place over maybe the next couple of months, we can see the share moving to about Rs 46-48. That should be the range one should take over the next two-month period.

On metals:

Looking at the results of Hindustan Zinc, where Sterlite Industries holds a 63% stake of the company as promoter's equity, overall my view is positive on the non-ferrous metals especially the aluminum and copper companies where Sterlite Industries has its core presence. My preference will be Sterlite Industries at these levels.

On Reliance ADAG stocks:

I don't think that now any negative is likely to be seen in the group's stocks. On the contrary in Reliance Infra , I expect that short covering can see the stock moving up by Rs 25-30. Ultimately it all depends on RCOM , on the newsflow which has been long pending over on the corporate front with respect to the tower business and inducting a 26% partner.

So overall, whether it is Reliance Capital , Reliance Infrastructure, RCOM, expect for Reliance Power since still there is lack of clarity on that stock with respect to its capital raising programme. So overall I don't think that you have any negative scene in all these stocks from hereon.

On Sesa Goa :

Sesa Goa is likely to post better results because we all know that Q2 is generally a subdued quarter owing to the monsoon season which leads to lower production. But overall there are two newsflows. One is the results and the second is the clearance of the Cairn-Vedanta deal. So that will have an impact going forward. But my view is mildly positive on the stock from hereon.