Jun 30, 2011, 11.32 AM IST | Source: CNBC-TV18

SP Tulsian's top picks: Hanung Toys, Advanta India

SP Tulsian of sptulsian.com sees Hanung Toys and Advanta India fetching good returns ahead.

SP Tulsian of sptulsian.com sees Hanung Toys and Advanta India fetching good returns ahead.

"Hanung Toys was recently in news because of their GDR issue. Though the company has been facing some issues, their fundamental and financial performance has been quiet reasonable." According to Tulsian, the sentiments may not turn negative from hereon. The stock doesn't seem to have much downside risk and is likely to see 20-22% growth ahead.

"Advanta India is the largest seed company in the world. They have increased their presence in Latin America and have made huge investments for the same. I see a lot of potential in the stock because the demand for the hybrid seeds is picking up world over. The share doesn't seem to have much downside risk and from a 12-18 months time horizon the stock can give 100% returns," he added.

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Below is the verbatim transcript of his interview with Udayan Mukherjee of CNBC-TV18. Also watch the accompanying videos.

On Hanung Toys:

This stock has taken a lot of beating mainly because of so many reasons.
About 3-4 months back it was expected that the company will be issuing bonus 1:1 that did not come. Then there was a news that company will be coming out with the GDR issue even that has been postponed. There have been all kinds of problems which has not been able to satisfy the investors. Since then the stock has been correcting. It touched a high of Rs 400 plus and now corrected to about Rs 125 just maybe a couple of days back.

Going by fundamentals, they are into the toys, home furnishing and textile making and the financial performance of the company has been quite reasonable. The company has been able to post an EPS of Rs 48 so that results into a price to earning multiple of close to about Rs 3 on the historic earnings.

Its price to book multiple is ruling at 0.7. I do not think that this sentiment can really go negative from hereon and yesterday we have been buying into the stock with huge volume. Majority of that volume has translated into the delivery also though we see good quantity getting as trading volume. At a lower level of about Rs 130 now the share is ruling at Rs 142-143. The valuation seems to be hitting the bottom of the valuation level and now the renewed buying interest is coming back.

I am quite optimistic on the stock that going forward they are going to experience a growth of about 20-22% for FY12 and that should translate in to an EPS of close to about 60. Even if you keep your PE multiples stagnant at about 3-3.5 share has the potential to move to about Rs 200 in the next 6 to 8 months time.

While I do not see much downside risk from hereon because looking into the companys balance sheet, looking at the company's plant capacity, they have three plants in Noida. They have a strong presence with the employed personnel of about 2,000 with a respectable capacity. So, taking all this into consideration I am expecting a good buy with a price target of Rs 200 in the next six- eight months.

On Advanta India

Advanta is a hybrid seed and agricultural biotech company and having a very strong presence. They are the largest seed company in the world and one of the largest in sunflower, mustard, corn and they have their strong presence in the overseas market. If you see their revenue break-up now 85% is derived from overseas market, 15% is derived from domestic market.

Lately, they have been increasing their presence in Latin America. If you see Argentina, Bolivia, Brazil, they have made huge investments in the last one year. The company came out with public issue in 2007 at Rs 650 and now the share is ruling at Rs 250. The cause of the fall in share price was largely due to the bad performance of FY11.

Company posted a top line of close to about Rs 700 crore on a consolidate basis and they had an EBITDA of Rs 70 crore. They posted a net loss of about Rs 30 crore and of this Rs 30 crore, Rs 13-14 crore came from exceptional item. They have to pay the severance compensation in one of their overseas subsidy or restructuring the business in that geography because of that the company had losses.

But, there is a lot of potential. In fact they are increasing their space or presence of Indian market also. Because we have been seeing that world over the demand of the hybrid seeds are picking up very much. In the Indian market there is lot of shortage of hybrid seeds.

The board of the company is meeting today also for raising money via issue of FCCB. If the share is ruling at its bottom and if the company is issuing FCCB only thing one has to see what are the terms. At what premium element. What will be the premium element for conversion, maybe five years down the line whether it gets converted at 30-40% premium.

So, that United Phosphorus is holding close to about 50% stake with 62-63% stake held by the promoter. Taking all this into consideration the share does not seem to have any downside from hereon. If one can keep a view of maybe 12 to 18 months, the stock has potential to give a return of 100%. It may not be able to give you much return in maybe next couple of months or next 2-3-4 months. But if a view of 12 to 18 months is taken the stock can double in that time horizon.

Q: The stock which caught everyones eye was KS Oils stock, what did you make of that 16% move?

A: We keep seeing this kind of movement particularly, in KS Oil, but honestly I see this more as a trading bump. But if you go by the pure fundamentals of the company, they have a one billion dollar topline with EPS of close to about Rs 4.25-4.30 paisa for FY11. So that translates share to rule at 5 PE multiple which is in line with all the solvent extraction or the edible oil makers.

There are at least five- seven companies available in this space. So, maybe this trading bump can take the share price to move to about Rs 25-26 but post that again we will be seeing profit booking coming in. If you take the case of KS Oil promoter holding of 35% and market cap of about Rs 900 crore never gives the comfort to the market that promoters are seen or may be the informed circles seen playing more into the stocks making the trading gains out of it, showing lot of volatility.

So I wont be attributing any fundamental reason for this, this is purely to do with a technical move. This is because it is very easy with a low market cap company of about Rs 900 crore to take it up by about 25-30% in any one trading cycle kind of things.

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