Pick Excel Crop, Williamson Magor & Mahindra Ugine:Tulsian

On Excel Crop :

The stock has corrected on the controversy of Endosulfan which is the product made by the company. In the Geneva convention, it was decided globally that this product will be phased out in the next 5 years, while the Indian government has been asking that five more years should be given for phasing out this product in India. Pursuance to that, public interest litigation has been filed in Supreme Court and it has passed an order on May 13, constituting a committee formed by the government, which will give the judgment or the report in the next 8 weeks. Yesterday, there was news that the report is likely to be made public in next couple of days. It is likely to be favourable because the phasing out cannot be immediate. The company has suspended the production and sale of this product in this last two months and made a provision of Rs 10 crore plus in the accounts of financial year 2011.

It is, however, learnt that even if we presume that the product will be allowed a cycle of 5 years to get phased out, it will be seen as a positive for the stock. It had corrected to Rs 130-135 couple of months back, and since then, it has been moving up. We traditionally see these agro-chemical companies have their best quarter for June and September.

If you go by their past performance, FY11 had an EPS of close to about Rs 35 and if we take the manufacturing capacity of the company, about 3 plants having 25% of their turnover coming in from exports, providing for cotton, sugarcane and so many other crops, chemicals and the agro chemicals for herbicides, fungicides. Taking all this into consideration, I do not think that the fear of Endosulfan can really resurface and once that clarity comes in, the stock can really move to about Rs 275-280 because this stock had a high of Rs 325 in the past. We are going to see the next two quarters quite positive for the company and we can expect an EPS close to Rs 30 in these two quarters. This share is looking attractive at these levels and one can take an investment call with a view of about 6 months on the stock.

On Williamson Magor :

This is a very interesting play because we have a trend of hiving of the investment arm by all the groups and companies. In fact, there are at least 50 investment companies which are available, listed, and ruling at about 25-50% of its NAV.

Williamson Magor is a very interesting play. If you see the shares held by the company, about 1.16 crore shares of Mcleod Russel are held by the company which offers a value at current market price of about Rs 325 crore. Apart from that, they are holding 1.68 crore shares of Eveready Industries , the market value of which is about Rs 75 crore. They also hold Kilburn Engineering , Mcnally Bharat , and even Williamson Magor Financial Services and all others. If you take all these investments, the value comes to about Rs 500 crore for all these stocks. The company’s balance sheet also shows Rs 40 crore as land at book value.

I am expecting value of about Rs 400 crore. I agree that all these assets are not going to get monitised in the near future, or even in the next 5 to 10 years, but even if you take their present value, the land is estimated at about Rs 200-300 crore. Then, they have a building with gross value of about Rs 40 crore. I am expecting that value at about Rs 200 crore. If you take all these assets into account, the current valuation works out to about Rs 850 crore, while the debt of the company is just Rs 100 crore. The net asset value per share on the present valuation comes to about Rs 600 plus, maybe, Rs 636-640 while the share is ruling at Rs 50. That means it is ruling at a price to book of Rs 0.08 of about 8-9%.

Williamson Magor Group has floated a joint venture company for cultivation of Jatropha, which is a biodiesel crop. Over 3 lakh acre is already being developed for cultivation of this crop. In this 50:50 joint venture, 50% is held by a UK-based company. Williamson Magor company holds 16% stake in that company and commercial harvest of Jatropha will start in March 2012. A processing plant in about 25 acres in Assam is already being set up.

Magor was an investment arm till now, but we will also see the manufacturing operations with a minority stake held in that JV also coming in.

If one can keep a view of maybe over next 12-18 months, the share can move to about Rs 80-100 in the next 12 months, in line with the investment stocks which are ruling at about 25-30% of the NAV. So this share has a lot of potential while it does not have any downside to go from here.

On Mahindra Ugine :

Mahindra Ugine is a subsidiary of Mahindra and Mahindra , and engaged in making alloys steel plus pressed sheet metal components and assemblies, apart from making gear and things which largely cater to the automobile, railway and engineering sectors. If you see the FY11 performance of the company had a top line of Rs 1200 crore, but had posted a net loss of about Rs 6 crore as the cash loss was not there.

They have four plants- Khopoli, Pune, Nashik and Rudrapur. 3-4 years back, the company used to report an EPS of Rs 15 plus, but in the last couple of years, they had problems with raw material volatility and the focus of the management was not there on the stock. The refocus and the company faring in the list of the group, and all other efforts are made to turnaround this company. The share is now ruling at a book value of Rs 50.

The assets of the company are rick. Just to give an example, they have a land at Khopoli of about 150 acre which has a present value of close to Rs 150-160 crore while the market cap of the company is Rs 165 crore only. If one can buy this stock with a view of one year, I think it has potential to move to Rs 80-90 in this period because operations are likely to improve in this fiscal.

Q: What about SKS Micro ? It has gone up 60%, yesterday was downcircuit, where do you see that stock settling finally?

A: For last couple of days there has been reports that some of the operators based from Ahmadabad have all been very active. In fact this is the news has been coming for last two- three days. Though it was difficult to digest, but we saw it falling by about 10% yesterday. Huge selling was reported by the same circle and thses people have been taking this as a fundamentally strong stocks and they have been taking advantage of volatility. The stock should correct now one way to about may be Rs 450 levels where it should settle.

Q: The one that has been underperforming the most from the realty pack is Unitech , down 11% in the last three days. Where will that stock find a bottom?

A: Yesterday there was news that CBI has found the overseas investments made by this company in its telecom venture has some benami names and maybe, the Indian origin names and all that. So that fear yesterday was prevailing more into the stock. If the things get aggravated further, it can put further pressure on the stock, and I am expecting that share may slip below Rs 30 in this series.

Q: Are you getting hopeful that something on fertilizers will happen because one keeps hearing of unconfirmed reports of how the minister is now ready to pass that long pending urea pricing and NBS… Chambal Fertilisers did well yesterday… do you think we are getting close to any kind of move?

A: I don’t think that one can see the same mechanism that we have seen for the complex fertilizer happening in urea. Yes, it is expected that the price increase of 10% will happen in urea, but I don’t think that the NBS pricing is very much likely. I maintain my view that unless you have the feedstock migration for all the companies, and even the cost parity for gas for all gas-based fertilizer plants, I don’t think that is possible. Even if some formula has to be devised, that will be very complex, and I don’t think that it will be helpful or in the interest of the industry.

Q: You track some of these auto ancillary companies, what did you make of Motherson Sumi’s acquisition yesterday?

A: I think that, maybe, the integration pain will last a little longer because the deal has been entirely financed by debt. The kind of the history the company has, there has been change of three buyers in the past ten years. However, on the advantage side, yes, the seller who has sold the stock is still continuing with 20% stake in the company. Looking to the track record of Motherson Sumi and complimenting their existing range of polymer products, I think that maybe 12-18 months will remain as an integration pain. Definitely, it is likely to be EPS decretive, but yes, in the longer-term, it will be seen as positive for the company