SP Tulsian's multibaggers: NMDC, Arvind Mills and Bajaj Fin

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 NMDC BSE | NSE 29/05/12 Are Mutual Funds betting on NMDC? Other Stocks in this news Arvind | Coal India | Reliance Industries | Sesa Goa | Bajaj Finance | Mahindra & Mahindra Financial Services | Shriram Transport Finance Corporation |

SP Tulsian of sptulsian.com picked NMDC,Arvind Mills and Bajaj Finance as his multibagger ideas for the day.

Speaking to CNBC-TV18, he says that the companies are poised to take advantage of the opportunities in their respective industries, which will bode well for the stock. He sees them returning well in the near term, when purchased at current levels.

On NMDC

Natural resource stocks have been in the news over a period now. We have seen Coal India retain its position as most valued company (in competition with Reliance ), we are seeing GMDC moving up quite swiftly on the hope that they will be doubling their production of lignite and other minerals....In lieu with industry trend, NMDC too looks quite interesting at the current price of Rs 220.

The ban on iron ore mining is not applicable to this company as they have their major presence in Chattisgarh. Considering the demand and the layoff which have been happening in Karnataka, probably, this company will stand to gain.

Going by the financials, the networth of the company is Rs 19000 crore and this entire amount is held as cash and bank balances. In Q1, Rs 2800 crore was topline and Rs 1800 crore came in as bottomline, which translates into an EPS of Rs 4.50 on an equity base of Rs 400 crore with face value of Re 1. Therefore, it is likely that the company should be able to post about Rs 20 earnings per share for FY12.

Knocking off the cash held by the company, which works out to about Rs 50 per share, it gives a value of about Rs 170-175 per share that is eight times price to earnings( PE). Coal India is now ruling close to 15-16 times, and Sesa Goa at six to seven.

Coal India and this company have similar shareholding pattern with low public float; 90% is government and about 8-9% is held by the institutions.

So, the moment you see renewed buying interest coming into the stock, this can easily move to about Rs 255-260 in the next couple of months. This stock is capable of giving annualized return of 20% because from hereon, the risk is very low. If I consider from the FPO price perspective, and peer comparison too, the stock is quite attractive at the current levels.

On Arvind

The immediate trigger for the stock to move higher is the monetization of the land. They have 12 million sq ft of which, they have already inked agreement for that about 9 million. Tata Housing got a deal for 134 acres of land and 3 million sq ft is with other developers. Over the next couple of years, the company should be able to generate about Rs 1500 crore from this.

Arvind is currently sitting on close to one-third the land bank. If they knock off the about Rs 1800 crore debt, that will make the position of the company quite healthy.

The interest burden of the company is more than Rs 200 crore on an annualized basis.

However, Q1 is giving quite some comfort recording a topline of Rs 1200 crore with EPS of close to Rs 2.50. FY12 EPS could easily be a double digit, close to about Rs 10 from core operations.

Arvind is the largest denim maker in the world with 110 million sq ft capacity and integrated textile plant. Their shirting division has been doing quite well and fall in the cotton prices bodes well for them. These factors and the foray of the company into retail are going to be a big kicker for revenue. This replicates the trend of Raymond , which also is monetizing land, and has strong brand equity.

Taking all this into consideration, I am quite convinced and attracted to the stock and expect that, maybe in the near-term, in the next 2-3 months, Arvind's shares should move to about Rs 90. It has the capability to breach three digit mark in the next 8-10 months time.

On Bajaj Finance

The valuations have become quite attractive. If I take the PE multiple based on FY12 expected earning, I am expecting an EPS of close to Rs 86-90. That means, the share is ruling at a PE multiple of seven times.

Bajaj Finserv holds 56% stake in the company and they have recently subscribed 60 lakh warrants which will get converted at Rs 651. Q1 results have been quite robust for Bajaj Finance with a topline of Rs 450 crore and PAT of Rs 91 crore, translating to an EPS of Rs 25.

Upon peer comparison with companies of same size such as Mahindra and Mahindra Finance and Shriram Tranport , I think this stock looks quite attractive. In fact, a positive view is maintained on all the three stocks I mentioned in spite of them looking expensive.

Nonetheless, Bajaj Finance is looking like it should be able to move to Rs 800 in the next 8-10 months.