Top picks: Tulsian's call on Bombay Oxygen, Vardhman

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SP Tulsian of sptulsian.com, in a discussion with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee, shared his views on his top picked multibagger stocks Bombay Oxygen , Vardhman Textiles and Grauer & Weil .

Tulsian expects all these stocks to do well from a long term perspective. "Bombay Oxygen stock price is expected to be Rs 10,000 in six months time. Grauer & Weil shares are presently ruling at Rs 74 and would breach three digit mark in next four-six months time with extremely good long-term potentials."

"Three months down the line, we might see this spinning and integrated textile company Vardhman Textiles getting re-rated. I expect the share to move to about Rs 275 in next five-six months," he explained.

Here is SP Tulsian's analysis on his top picks.

On Bombay Oxygen

Bombay Oxygen is an unheard story. The company makes industrial gases like oxygen, nitrogen, argon and acetylene. For the core business, the company has five plants of which three are owned by them. They are located at Pune, Tarapur and Nagpur. They have two plants, one located at the premises of Mukand Limited at Kalwa and other at Mahindra Ugine at Khopoli.

All these five plants have been contributing to the core business of the company. If you see the methodology or strategy adopted by the company, they are monetising the land held by the company with them. The company had its gas manufacturing plant at Mulund which was sold in 2008.

The land was sold for about Rs 200 crore to HDIL in 2008. The company might adopt the same strategy for Tarapur and Pune because the industrial consumers require gases at their plant. The company had topline of close to more than Rs 50 crore with EPS of Rs 280. The share has a face value of Rs 100. It is still traded in the physical with a market lot of five shares.

The company had net worth of Rs 200 crore of which Rs 50 crore has been used for the plant and machinery, plus the cylinders where the huge investment is made by the company. As much as Rs 150 crore is lying into the liquid assets in the form of Rs 50 crore in mutual funds and blue chip listed stocks, and Rs 100 crore has been given as intercorporate deposit to one company.

Strangely, the company has not been booking the interest income of this Rs 100 crore ICD because they say that the rate has not been determined. As and when it finalises, this income will get booked.

Even if we presume a post tax return of 7-7.5% on this Rs 100 crore, the PAT of the company can rise to by about Rs 7.5-8 crore. This will translate into an additional EPS of Rs 500 per share which means and additional Rs 500 on Rs 280 EPS. This can translates into an EPS of Rs 800-1,000. The share is ruling at Rs 7,000.

The Pune land might get monetised in next couple of years. If I take a call on net present value of all the assets, the stock looks quite undervalued. It has a marketcap of Rs 100-105 crore with no debts in the books of the company.

These kind of thinly traded high value stocks move up by Rs 1,500-2,000 or Rs 2,500 in no matter of time. In six months time, I expect a price of Rs 10,000 on the stock.

On Vardhman Textiles

Vardhman Textiles is a very interesting play. This is the largest company as an integrated textile maker with spindleage of Rs 7.5 lakh. Any other company would not have this kind of spindleage capacity. They have about 900 looms and 4000 rotors. There are divided opinions that probably the spinners might not do well.

If you see the June quarter results, all will post very bad results. I don't expect that to happen subsequently because the inventory losses which these cotton spinners will see a dip. The margins on a sustainable basis in the subsequent quarters can't get eroded.

This is the largest company with 16 units for yarn making, fabrics, dyeing, processing and garments making in the same vicinity. If we take all this into consideration and the financial performance of Rs 4500 crore topline, they posted an EPS of about Rs 90 for FY11 with PAT of Rs 525 crore on equity of close to Rs 58 crore.

If we take the call for FY12 as against Rs 90 EPS posted by the company, I expect the company to post an EPS of close to Rs 60. The June quarter results might be an aberration, but thereafter, we will see a stable performance in subsequent quarters.

The share is ruling at a 3-3.2 PE multiple. For March 31, 2012, the bookvalue should be at Rs 400-410 that gives a price to book of 0.5. The management of the company have been very conservative. The dividend payout ration is very low at 5% which we have seen for FY11 where dividend is at 45%. The dividend is so low may be to conserve the resources and reduce debts in the books of the company which they are sitting on close to about Rs 2000 crore against the gross block of Rs 6000 crore plus.

Three months down the line, we might see all this spinning and integrated textile companies getting re-rated. I expect the share to move to about Rs 275 in next five-six months.

On Grauer & Weil

Grauer & Weil provides metal finishing, surface treatment an industrial paint. This company has five plants at Chembur, Vapi, Dadra, Himachal Pradesh and Jammu & Kashmir. The Jammu & Kashmir plant has started recently.

The company has a topline of close to about Rs 300 crore with EPS of about Rs 6-6.5 and cash EPS of Rs 10. In last couple of years, the company has monetised or rather developed their land at Kandivali, and made it a lifestyle entertainment and multiplex shopping complex on the lines of Phoenix Mills. It is called as a Phoenix Mill of Suburban also called as Growell 101. It is a 7.5 lakh square ft to which around 3 lakh square ft area has been added recently.

Its rental income will also flow in FY12 or FY13 onwards. Last year, the company had acquired Bombay Paints which is located at Chembur, which got merged into this company due to which equity increased by about 50% from Rs 14-14.5 crore to Rs 22.5 crore.

It won't be surprising to see that Chembur property being developed and called as Growell 771. This will be the core business into the main business. There is a huge rental income flowing in from these multiplexes. The value of the Growell 101 right now is estimated at over Rs 1,000 crore.

The market cap of the company is Rs 175 crore and the enterprise value is at Rs 300 crore. The debt of Rs 125 crore is largely for working capital. If we go by the shareholding pattern, 80% is held by the promoters and associates, and 20% is with the public float.

The company has initiated a move to split the share to face value of Re 1. All these things may trickle into the valuation. The share, ruling at around Rs 74, would breach three digit mark in next four-six months time with extremely good long-term potentials in the time to come.

On Alstom Projects

There has been some disappointment at the capital goods sector like Crompton Greaves, BHEL. I will place Alstom in the same category. The run up seen in last week has breached past 600 mark since then may be because the results were not expected to be that bad.

Some insiders might have informed and the stock corrected, it can't fall below Rs 540 because the renewed buying interest might emerge at those levels. This can be taken as a stock with a broad range of Rs 540 to about Rs 600 for next one month to one and a half months.