SP Tulsian's multibaggers: Selan and Solar Industries

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 Selan Explore BSE | NSE 29/05/12 Are Mutual Funds betting on Selan Explore? Other Stocks in this news Solar Industries India | ICICI Bank | GTL Infrastructure | Sesa Goa | NMDC | JSW Steel | Adani Enterprises | Adani Power | Adani Ports and Special Economic Zone |

SP Tulsian of sptulsian.com picks Selan Exploration and Solar Industries as his multibagger ideas for the day. He sees both stocks returning well over a six to eight month horizon.

In his chat with CNBC-TV18, he also opines on the effect of Lokayukta report on the companies named in the report, and analyses ICICI Bank's recent acquisition of stake through pledged shares in GTL's tower business.

Below is edited transcript of his comments. Also watch the accompanying video.

On Selan Exploration :

Selan Exploration is into oil exploration. Though not a very big company, they produce about 3 lakh barrels of crude oil per year from their two operational blocks at Gujarat. Two more has already undergone 3i seismic studies and in my view, they should be operational in the next 6 to 8 months. Going forward, company should be able to ramp up production by about 50-100% in the next couple of years.

As for the financial position of the company, Selan Exploration is sitting on a cash balance of about Rs 100 crore. So they do not have to borrow any thing for this research and exploration survey activity. That translates into Rs 60 per share and if you see the financial performance for FY11, they posted an EPS of close to about Rs 18 with topline of about Rs 75 to 80 crore.

With the market cap of about Rs 550 crore and an enterprise value, if I knock out the cash held by the company, of about Rs 450 crore, and aided by the gradual upside we have been seeing in the crude prices, I think this can be a steady stock to hold in the portfolio. One can expect a price of about Rs 415 in the next 6 to 8 months time.

On Solar Industries :

Solar Industries is into making explosives and initiating devices used by infrastructure, mining and construction companies. If you look at the Q1 performance of the company, it indicates a growth of about 33% and the company has about 16 plants in the country with presence in 8 states where mining activities are carried out in a very big way. Apart from that, they have moved into Africa and Europe and that is showing considerable progress. With the kind of requirement which we see for mining in Africa, I think this is going to be a big kicker for the stock in terms of increase in top-line and bottom-line. Taking that into account, I am expecting that FY12 could have a top-line of close to Rs 1000 crore with EPS of Rs 60 per share.

If I go by the shareholding pattern, it is quite comforting - 75% promoter stake, 15% held by three-four well-known mutual funds and about 7% is held by HNIs who are associates and close to the management. There is a very low public float of about 3%.

Solar is a debt free company and has been recording very good performance. The share is available at a PE multiple of 10.5-11 times on FY12 estimated earnings, which is expected to take the share price to about Rs 1000 in the next to 6 to 8 months time.

Q: ICICI Bank recently got close to 30% in GTL from conversion or pledge of shares. How do you read this development?

A: The market has reacted positively to this news, but I don't see this as positive because ICICI Bank, having acquired 29% now remains the largest shareholder in the company, surpassing Manoj Tirodkar too. In fact, this is a forced move because the lender had no other choice but to go for the acquisition of pledged shares with them.

If you are talking of only GTL Infra, going for debt restructuring or maybe stake sale in the tower business, I don't think can really solve the problem, unless and until you combine both the companies. They need to have a re-schedulement or asset sale call, and then take the debt picture into consideration. This is just a temporary relief on hopes that something is going to come out, but I don't think that things can really improve on a fundamental basis for both the companies.

Also read: Ore ban at Bellary may see JSW drop steel production, says Macquarie

Q: You heard Macquarie's view on JSW and Adani. How would you approach these two beaten down stocks now?

A: I agree that for JSW , things are going to be difficult, but for Adani Enterprises , they have said that they do not own a single mine in the whole country. They haven't gone for mining operations of any quantity and that may be seen as a knee jerk reaction on the share price. 

For JSW Steel, unless and until you have relief coming in from the Apex Court and maybe, the mining operations gets restored; there is not much scope for positive share price movement. With Adani Enterprise, I am not too worried because allied stocks like Adani Power or Mundra Port too have corrected on Friday.

The impact on JSW Steel should remain for a longer time, but I don't think Adani Enterprise should really get affected from hereon on a real value basis.

Q: In the Lokayukta report, there is a mention of other companies - Sesa Goa , for instance, for exporting iron ore post the ban, and NMDC , for selling very low rates. Any other companies that you may think may stand impacted?

A: I do not think that any other companies are likely to get impacted. Even for Sesa Goa it may be a neutral effect because even if you take the ban on the iron ore, the demand for that can only increase. Things are not going to get diverted totally to the domestic market, but for Sesa Goa, from hereon, I don't think things are looking too bad. It maybe the same case for NMDC also. One has to examine what quantity got sold at lower prices and I do not think that the effect of this should really spill over to other stocks.