SP Tulsian's favourite smallcap stocks

Excerpts from CNBC-TV18's exclusive interview with SP Tulsian:

On Manali Petro:

Manali Petro has declared maiden dividend of about 10%, which translates to Rs 7.75 per share. The company has recently restructured their equity whereby they have reduced the face value of the share from Rs 10 to Rs 7.50. This Rs 2.50 has been used by the company to wipe of their accumulated losses and because of that, they have been able to declare their maiden dividend and it is totally a debt free company.

They are making Polyols and Polypropylene Glycol, which again is an import substitute item. The fresh trigger likely in the company is that the promoter of Manali Petro is SPIC (Southern Petrochemical Industries Corporation). SPIC in its restructuring programme is contemplating disposing their 39% to restructure their loan into the parent company SPIC, as institutions have been after them to dispose of their investments in Manali Petro and Tamil Nadu Petro. So probably, if the disinvestment trigger takes place from SPIC, then one could see great value getting unlocked to the extent of Rs 25/share by the intending buyer for the company.

On NRC:

NRC  has its plant at Kalyan; they make Viscose Filament (rayon) Yarn, plus nylon tyre cord fabrics and caustic soda. They have their own power plant of 20 megawatt. The whole manufacturing facility is located on a land area of about 450 acre, of which 350 acre is the surplus land, for which the company has entered into an agreement to sell the land at Rs 167 crore.

We have tried to contact the management but they have not clarified whether this Rs 167 crore is for 50% of 350 acres or this is the entire sale consideration. If you take the value even for the entire land of about 300 acres, the present market capitalization is about Rs 90 crore.

The company has total debts in their books of about Rs 110 crore, so you get an enterprise value of about Rs 200 crore.

The company is looking at liquidating their whole debt and becoming debt free. Thereafter, they will start making profits. In the past they have hinted that they may not be interested in continuing with the manufacturing operations.

If that happens, probably they will be able to dispose off or liquidate their industrial units of Viscose Filament (rayon) Yarn, nylon tyre cord fabrics and caustic soda, maybe for a value of about Rs 100-150 crore. All these things give a good valuation to the company's shares, close to around Rs 50-60 /share.

Even the promoter stake is quite good in the company, of about 55%. All these things make this share a good buy at Rs 24. There is no downward risk but on the upside, one can expect a return of about 50-100% from these levels.

For the sale of land, they have already entered into an agreement. This sale proceed of Rs 167 crore is likely to be received by them over 12 months, subject to clearances etc. But suppose, the clearance does get delayed, then there will be concerns. But otherwise, there seems to be an advanced progress in disposing off the land by the company. The consideration of Rs 167 crore is likely to be received by the company very soon, may be in the next 6-12 months.

Disclosures:

My clients and myself have interest in both the stocks.