SP Tulsian's multibaggers: Karnataka Bank and MOIL

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SP Tulsian's multibaggers: Karnataka Bank and MOIL

SP Tulsian of sptulsian.com picks out his multibagger stock ideas to be bought at current levels today. He chooses Karnataka Bank and MOIL.

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SP Tulsian of sptulsian.com picks out his multibagger stock ideas to be bought at current levels. He chooses Karnataka Bank and MOIL today.

On Karnataka Bank

This is probably the cheapest bank in the private sector banking space. If I first take a call on price-to-book, it is at Rs 0.55. The financial performance has not been bad because on the absolute number for the first half, the bank has posted a PAT of about Rs 91 crore which was at Rs 75 crore on the corresponding quarter of the previous year. But because of this some equity dilution, it placed at close to about Rs 190 crore now. EPS is slightly lower at Rs 4.85 for first half against Rs 5.50 for the same period last year. So taking an overall call, I think this looks to be good valuation.

The bank has 478 branches, about 250 ATMs and I don't think there is going to be a big negative in the financial performance going ahead except that there has been increase in the net NPA to about 2.22% which was 1.62% on March 31, 2011. However, I don't think that can really be the reason for hammering or beating down the share to the current price-to-book.

If you see the shareholding pattern, 70% is held by the institutional investors, HNIs hold 40% and 30% is with the public. It has a market cap of close to about Rs 1500 crore and there was talk in the past that this is seen as a takeover candidate. In fact now also we get to hear that two-three people are eyeing this bank because of the concentrated shareholding of 70%.

Considering that probably banking sector has seen its worst, and from here on, all we get to hear is that we are going to get positive news for this sector, this is looking like a good buy. If somebody can keep a view of about six-eight months, I won't be surprised to see the share reaching a three-digit mark.

On MOIL

Exactly one year back, the IPO of this company was launched in the end of November at Rs 375, and now it is ruling at Rs 230 which shows an erosion in value of about 40%. At that point of time, I don't think any analysts had given a negative call on the stock; in fact, the IPO rating was also five out of five.

Coming to the core business of the company, they have 50% market share and is the largest manganese ore-maker in the country. Manganese ore is used for making Ferro alloys which is used in steel production.
MOIL had an EPS of Rs 35 for FY11 and first half EPS is at Rs 12.50. Extrapolating the same, I expect FY12 EPS to be at Rs 20 against Rs 35 of FY11 EPS, so there is a drop of about 30%, but the share has already seen an erosion of 40%.

Nonetheless, I don't think that you will find such a clean balance sheet in the PSU basket. We have been hearing noise of share buyback or cross holding. Simply to put the financials in perspective, the net current assets of the company is at Rs 2090 crore and out of that, Rs 2070 crore is held as cash. We were only seeing cash balance of PSUs in isolation, while it should be read along with the net current assets, and if the net current assets are slightly more than cash balance, then any company can really fall back on that cash.

This Rs 270 crore cash balance works out to Rs 125 per share. So out of this Rs 230 current market price, if I knock out Rs 125, it gives me a core valuation of Rs 105 and EPS of Rs 25. That gives a PE multiple of 4 times.
Considering the overall stainless steel prices, I think the manganese ore prices looks to have bottomed out and even the royalty burden of the company is quite low at Rs 70 crore. If there is a 100% jump in royalty burden in times to come post MMDR bill, I don't think this is going to see further erosion from here.

However, since the stock has been continuously going down, nobody is taking a call on the stock, but in my view, it looks to have bottomed out. Maybe a fall of about Rs 10-15 from here on can happen, but it can move back to Rs 300 in next six-seven months.