SP Tulsian's view: Kanoria Chem, Den Networks, Wim Plast

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SP Tulsian's view: Kanoria Chem, Den Networks, Wim Plast

SP Tulsian of sptulsian.com, in an interview on CNBC-TV18 spoke about the Kanoria Chemicals deal as well as gave his multibagger ideas - Wim Plast and Den Networks.

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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 Kanoria Chem BSE | NSE 29/05/12 Are Mutual Funds betting on Kanoria Chem? Other Stocks in this news Wim Plast | Den Networks | Dish TV | Wire and Wireless (India) |

SP Tulsian of sptulsian.com, in an interview on CNBC-TV18 spoke about the Kanoria Chemicals deal as well as gave his multibagger ideas - Wim Plast and Den Networks .

Below is a verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. For the complete interview watch the accompanying video.

Q: On the Kanoria Chemicals deal - what do you think a minority shareholder should take away from it?

A: It is an unfortunate deal for minority shareholders because I just heard Mr Kanoria explaining the contours of the deal. If you go by the broad parameter, Rs 830 crore is a total consideration on a slump sale basis.

Obviously, the slump sale will attract tax which on a ballpark figure will be about Rs 200 crore tax. They have earmarked about Rs 250 crore for debt retirement and if you knockoff this Rs 450 crore, the residual amount left with the company is close to about Rs 380 crore.

If you see the shareholding pattern, Mr Kanoria has been saying that if they distribute the dividend, the majority chunk will go to them but I fail to understand that even if you take this situation now, the entire amount is at the command of Mr Kanoria to the extent of about Rs 380 crore to Rs 400 crore and minority shareholders are not getting anything.

Coming on the shareholding pattern, promoters are holding 57% while the six institutional investors of which IFCI and the other general insurance and LIC are the major shareholders holding 25% stake. They should raise their voice because 18% of the minority shareholders could have very well been compensated in lieu of the amount of tax which the company will be paying on these transactions which is to the extent of about Rs 180-200 crore.

It all depends on the return down value of all the assets of this particular division. These things are very unfortunate. This is again a repeat of similar transactions like in the past we have discussed Gwalior Chemicals, Borosil Glass and Piramal Health. If they would have had any intention of giving dividend, in that event they would have gone for a stake sale only where an open offer would have triggered because the dividend distribution tax attracts 18% tax.

On the face of it, you can make out that the management has no respect and are not concerned about the interest of the minority shareholders and they just talk that they got good price, they have good opportunity in their Formaldehyde plant, in their Ankleshwar plant and in their Vizag plant. I feel pity for the minority shareholders.

Q: Wim Plast is a midcap that you have picked today?

A: Wim Plast is a plastic furniture maker and has a strong presence. The strength of the promoters' lies more in their distribution space because they have a strong brand Cello. They have two plants - one in Baddi, Himachal Pradesh and the other in Daman which means they cover the western and northern region.

Now the company has recently acquired a plant at Chennai for about Rs 15 crore. So they will cover the southern region and they are setting up a new plant in Kolkata which will cover the eastern region with a capital outlay of close to about Rs 20 crore.

The capital investment in all plastic furniture makers is not very huge. You can setup a plant with capital outlay of about Rs 20-25 crore. In fact, what you need is more of the working capital and because of the strong marketing network and strong brand equity which the promoters are enjoying the profitability of the company is very high. In the first nine months performance they have shown a topline of close to about Rs 120 crore with an EPS of close to about Rs 22.

For the whole of FY11, the company is going to post an EPS of close to Rs 30 on topline of Rs 160-165 crore. The Chennai plant will go on-stream in the next couple of months, the Kolkata plant will go on-stream maybe in the next 10-12 months but at least FY12 will see a major contribution coming from the Chennai plant. You can expect a growth of about 40% on FY12, similar growth in FY13 also.

The share is presently ruling at a PE multiple of close to 7. At an EPS of Rs 30 the share price right now is about Rs 205. This segment enjoys a little higher PE multiple if you compare it to its peers which is close to about 10. So PE expansion and the growth in the earnings and profitability in the next couple of years makes this stock safe and good buy at the current level.

Q: From the media space you have picked up Den Networks. Take us through why?

A: This is because of the clarity or the roadmap expected for digitization. If you see the financial performance, what I like about the company is that they have never incurred a loss. If you see the financial performance of Dish and Wire and Wireless India Limited (WWIL) they are losing quite a good amount of money.

This company has an annual turnover of close to about Rs 1,000 crore and will make a profit of about Rs 40 crore with an EPS of Rs 3. If you see their bouquet, the 50-50 joint venture with Star, for aggregation of 29 channels on all the platforms - analog, digital and IPTV, all this makes quite a good roadmap ahead.

This is because by March 31, 2012 the digitization for all the four metros and getting all implemented pan India by December 31, 2014 is expected. This is going to benefit all the companies whether you talk of Hathway, Dish or Den. But because of the financial health of the company I have taken a more positive view on the stock.