Multibaggers: Tulsian's 3 picks that can give good upside

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Multibaggers: Tulsian's 3 picks that can give good upside

SP Tulsian, sptulsian.com is bullish on VBC Ferro Alloys, Ramky Infrastructure and Orient Press.

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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, sptulsian.com is bullish on VBC Ferro Alloys , Ramky Infrastructure and Orient Press .

Below is a verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.

Q: What is the story of VBC Ferro Alloys?

A: VBC Ferro is a pure ferro alloy play and that's the present business. If we go by the present performance of the company, in fact this sector has been doing quite well because of the hardening of the prices and good robust demand from the steel sector. So, the company has been doing quite well.

If you go by the financial performance for FY10, they have posted an earning per share (EPS) of close to about Rs 11, while they have already posted an EPS of close to about Rs 18 for nine months ended December. If you see the top-line, it has been maintained for FY10 also they had a top-line of about 80 crore, in nine months, they have achieved a top-line of about Rs 80-81 crore. So, FY11, the core business will show an EPS of close to about Rs 23.

Apart from that, this company is promoter of Konaseema Gas Power Company Limited, which is a 400 MW gas based power project in which they are holding 13.5 crore share having acquired at book value of Rs 10. This power plant is continuously running with the gas having source from Reliance Industries' KG basin. This company is now expanding their capacity by another 820 MW, for which they are planning to place the shares with the institutional investors like IDBI, IFCI and the insurance companies because all these institutional investors are already holding stake in the company.

If you go by the financials of the company or the marketcap, the present marketcap of the company is just Rs 100 crore. Even if I add the debt, which is about Rs 50 crore, it works out to about Rs 150 crore enterprise value. While the 13.5 crore shares to be precise 13.43 crore shares, which are holding Konaseema Gas Power Gas by VBC Ferro can be valued at about Rs 750-800 crore because the placement is to be made at about Rs 60-70 per share to the institutional investor. Konaseema is planning an intial public offering (IPO) also, maybe one to one-and-a-half year down the line which can further enhance the valuation of this investment held by the company.

So, taking overall view, already profit making company with PE of 23, the PE multiple is working out to be about 10, book value of the share is close to about Rs 320-325, so, available at a price to book of 0.75. So, going by all the financials or the fundamentals, I don't think that there is any risk of the downside. If someone can keep a view of one year, the stock can double in this period.

Q: It's not the favoured space for the market right now, but you have picked Ramky Infra, another one of those irrigation based ideas?

A: That's right. If you go by the history of this company, they went public about three-four months back in the month of October. There was offer for sell as well as IPO and company mobilised about Rs 350 crore from IPO by way of fresh issue. Part of that money used for repayment of the term loan and majority of the amount close to about Rs 200 crore has been sourced for working capital.

We know that the present problem for all these construction or the contracting companies or the infrastructure stocks are facing huge liquidity crunch. I think the IPO money, they made the IPO at Rs 450, has been helping this company to keep the interest cost under check. That's a reason if you see the financial performance of the company, they have declared the results first time for the quarter ended December post their IPO, they posted a top-line of close to about Rs 835 crore with profit after tax (PAT) of about Rs 46 crore. So that translates into a PAT margin of about 5.5%. We have been seeing sharp drop in the PAT margin of majority of these kind of companies to as low as about 2.5-3%, while this company has been able to maintain at 5.5%. Generally, for this company 7-8% is taken as the ideal PAT margin, which I think that maybe with the improvement in the time to come and maybe with the better orders coming in and with little control on the interest cost, this company should also be able to improve their PAT margin.

If you go by the present marketcap, the company's present marketcap is close to about Rs 1,700 crore, of which Rs 500 crore can be taken conservatively as the developers' assets, maybe like real estate development. So, with an order pipeline of close to Rs 7,500 crore with expected top-line of close to Rs 4,000 crore for FY12, I think Rs 1,200 crore looks quite low, their margin, their business is all in place. So, maybe downside is very low. We have been seeing the renewed buying interest at the lower level practically in all these type of companies, so Ramky also falls in that category. At Rs 300, if somebody buys it, one can expect a return of about 25% in next four-six months time.

Q: You have picked an unusual stock today, Orient Press, what is the story there?

A: Orient Press has been leader especially in the IPO market, printing the share application forms and prospectus. If you see their track record for last 15 years, they have been enjoying that leadership. But six-seven years back, as a measure of diversification they have moved into the packaging business. And that has been bothering this company, in fact that company has eroded the net worth and they created the outstanding debts and the company has to go for onetime settlement with all the lenders.

If you see the recently posted performance for nine months ended FY11, the company has posted an EPS of close to about Rs 13 on top-line of Rs 120 crore. Of this Rs 13 EPS, Rs 5.20 paise has come in Q3 alone. If you see the segmental breakup of the printing solutions as well as of the packaging, though both are contributing almost equal to the top-line, but on the bottom-line still printing business has only come on a breakeven level at the EBIT level. Maybe for FY11, the packaging business will not contribute anything, maybe the EBIT could be about Rs 50 lakh to Rs 1 crore.

Going forward because the management has taken a conscious decision of making this company debt free, they have virtually repaid the entire term loan in this last couple of years and they have the small working capital in the books which they are also planning to retire and make the company debt free maybe in next six months or so. So, FY12, they will be having the robust or maintained contribution from the printing business and even the packaging business will start contributing to the bottom-line for FY12.

As I said Rs 12 EPS for nine months of FY11, one can expect EPS of about Rs 15 or maybe Rs 16 for FY11 because the company has not provided any tax because they say that they have the accumulated losses, so they have moved an application also for waiver of the MAT applicability to the company. So, even if I take the minor tax application coming in from FY12, one can expect an EPS for FY12 at about Rs 16-17.

If you take the present market price, it is ruling at a PE multiple of less than 5 with the packaging and presence in the packaging and printing solutions. So, this looks to be a good stock, maybe one can expect about Rs 110-120 in next six-eight months time.