Jan 06, 2011, 11.52 AM | Source: CNBC-TV18
SP Tulsian, sptulsian.com is bullish on Ugar Sugar, GM Breweries and Bhartiya International.
SP Tulsian (more)
CEO, sptulsian.com | Capital Expertise: Equity - Fundamental ,IPO
He is also positive on fertiliser stocks. "I donít see any major disappointment happening because of the GoM meet getting deferred."
Here is the verbatim transcript of his interview with Udayan Mukherjee and Mitali Mukherjee on CNBC-TV18. Also watch the accompanying videos.
Q: Itís been going good for some of the sugar stocks and you like Ugar Sugar from that bracket.
A: Thatís right. If you see the recent development in Ugar Sugar, maybe six months back they have exited from their two joint venture sugar mills and they fetched a good amount, they sold that unit to EID Parry. Now, they have been operating with two units; one at Ugar having 10,000 tonne crushing capacity per day and second at Jewargi having capacity of 2,500 tonne per day. They have been searching for a buyer for their 2,500 tonne per day unit. Recently, the information, which is gathered, that they have been able to identify a buyer and thatís the reason they have yesterday given the intimation also to the stock exchanges for passing the resolution for selling that unit.
Now, that unit has not been doing well in spite Karnataka being the hot place now for the sugar mills. This unit having 2,500 tonne crushing per day and 15 MW cogen capacity, in my view, they can fetch about Rs 120-125 crore because the company has debt of about that much only. If I take the total debt which is to the extent of Rs 200-220 crore, half of that is towards the working capital against the stock and half towards the debt, towards the term loan. So, if they are able to sell this, they will make their company debt free. And then thereafter they will be focusing more on the Indian made liquor, IML business along with Ugar Sugar which is doing very well.
The present one, the bigger unit at Ugar having 10,000 tonne, is going to make the production of about 2 lakh tonne of sugar in this year. Their Q2 performance was not very good, they had posted a loss of about Rs 20 crore. But on FY11 basis, the company should be able to post a profit after tax (PAT) of close to Rs 30 crore on an equity of 11 crore.
Going forward, this season is going to remain very well. Karnataka has been the hot destination; there has been 12% plus recovery, good realisation, sugarcane prices in place and all that. So, taking all this into consideration, I think Ugar Sugar looks quite reasonable amongst the sugar space. This move of Jewargi should be seen as a positive for the stock.
Q: The next one you have picked out is GM Breweries.
A: This company is making country liquor. If you see the performance, the bottom-line, what the company has posted in FY10, they have shown the same kind of performance in H1. They have posted the identical results in Q1 and Q2, so one can easily extrapolate the results to find out FY11 performance which I expected to be about maybe Rs 225 crore as top-line and earning per share (EPS) is likely to be about Rs 23-24.
Itís a cash rich company, debt free and the marketcap has been quite low at about Rs 100-110 crore. So, if you take the present market price of Rs 120, it translates into a PE multiple of about 5 to 5.5 times, while all other brewery stocks in the same category in the same in the smallcap and midcap have been ruling in a double digit PE multiple. The kind of growth, which is expected from the company in FY11, an EPS of Rs 22-23, can get increased to about Rs 27-28 going forward in FY12. So, taking this into consideration, I donít think that there is any kind of downside because of the debt free status, high promoter stake of 75%, consistent performance, strong presence. Taking all this into consideration, I am quite positive on the stock over next six month period.
Q: What about Bhartiya International? Why do you like that story?
A: The companyís core business is leather products and clothing accessories. If you see their product mix, they get larger share of their top-line from the leather products, they have some of the overseas subsidiaries also. In FY10, in H1, the EPS has been close to about Rs 5.5 per share with bottom-line of close to about Rs 5.5 crore, they have an equity of about 9 crore which translates in about Rs 80 crore.
The interesting part about this company is that they are developing an integrated township at Bangalore on a land area of about 100 acres which is owned by the company. It is developed by the subsidiary of the company Bhartiya Urban in which IL&FS have also invested about Rs 150 crore in this project. This project is likely to have a developable area of about 20 million sq. ft which will get developed in next 10-12 years time.
Sometimes you wonder that with this kind of assets and with a debt of about maybe Rs 25-30 crore with the company with enterprise value of about Rs 110-115 crore has been ruling quite low, maybe probably this realty, real estate stock held by the company has not come in the news. But even if I go by the pure performance FY11 EPS of about Rs 10-11 plus the main attraction of this integrated township being developed by the Bangalore, seems to be a big attraction. So, if one can take a call on this smallcap stock with a view of about 12 months, I think this can be quite rewarding for the investors.