Tulsian cherry picks Lakshmi Machine, India Motor Parts

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Tulsian cherry picks Lakshmi Machine, India Motor Parts

SP Tulsian of sptulsian.com picked Indo Motor Parts and Lakshmi Machine Works as multibagger stock picks for the day.

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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

SP Tulsian of sptulsian.com picked India Motor Parts and Lakshmi Machine Works as multibagger stock picks for the day. According to Tulsian, if one keeps a 12 months view then Indo Motor Parts can test levels Rs 900. He expects Lakshmi Machine Works to move to Rs 2,800 in six-eight months time horizon.

"Indo Motor Parts belongs to TVS Group and they distribute auto parts and accessories. They market products manufactured by 50 manufacturers to about 35,000 dealers across the country. It shouldn't be considered only as a distributing company. The company has been a consistent performer and has strong net worth," he added.

Lakshmi Machine is a market leader in textile machinery. It is sitting on huge cash balance of Rs 650 crore. The company has been a consistent performer as far as financials are concerned."

Below is the edited transcript of Tulsian's interview with CNBC-TV18. Also watch the accompanying video.

India Motor Parts & Accessories:

This company belongs to TVS Group and they distribute auto parts and accessories. One can say that they have 50 outlets, 50 offices. They market products manufactured by 50 manufacturers to about 35,000 dealers across the country. With this kind of network considering the auto boom and the replacement market, is quite robust and healthy. One should not take this company as a distribution or marketing company.

Any ramp up in the product in the top line is giving them a net profit margin of about 6-7%. That is getting indicated from their first half results. They have posted a top-line of about Rs 250 crore with a PAT of about Rs 15 crore. This has translated in to an EPS of Rs 35 for first six months.

Their equity is quite low at about Rs 4 crore and 50 lakh. Their networth is quite strong at about Rs 155-160 crore which translates into a book value per share of about Rs 360-370. If one looks at the surplus cash employed by the company, they are holding about 1,390,000 shares in Sundaram Finance.

The present market value of which is close to Rs 75 crore. Apart from that they have parked Rs 20 crore in liquid mutual funds. They also have some other investments. All this put together comes to about Rs 120 crore against their present market cap of Rs 260-265 crore.

But even if we take their pure financials, it has been a consistent performer. The five year growth chart of the company shows that they have been continuously increasing their EPS. Maybe five years back EPS was close to Rs 25-30 now it might be Rs 70 plus for FY12.

I won't be surprised to see the company posting an EPS of Rs 100 for FY15 in the next three years. In FY12, the company will have an EPS of Rs 70. So this is a very consistent company with very good performance. The set distribution network across the country gives good comfort. If somebody can keep a view of 12 months then they can look to a price of Rs 900 on the stock.

Lakshmi Machine Works

This is a very interesting story. They are the market leader in the textile machinery. They are amongst top three in the world for making entire range of spinning machinery. The present market share of the company in India it is close to about 60%.

They have been consistently doing well. They are sitting huge cash and that is why they resorted for share buyback last year. The buyback brought down their paid up equity to about Rs 11 crore 30 lakh as of date.

The interesting part about this share holding pattern of the company is that the promoter stake is only about 28-29% but 12 HNIs hold about 38% stake. These 12 HNIs have been holding stake for ages, considering confidence and financials of the company.

For the first half they posted a top-line of about Rs 1,100 crore with a PAT of about Rs 90 crore. This translates into an EPS of about Rs 80. The company has been traditionally utilising sundry creditors to a great extent. Corresponding to that, they have huge cash balance of Rs 650 crore in their books as of September 30. With that per share value comes to about Rs 580.

Since they have higher current liabilities it means the net ratio is at negative. If we knock off cash balances and still take the cash balance at about Rs 350 crore it gives a value per share of about Rs 320- 330. For the last couple of years we have seen a little dullness in the textile industry because of no investments coming in. But now the cycle is picking up.

One can expect an EPS of about Rs 200 for FY12 and an EPS of about Rs 215 in the time to come. The share which is now ruling close to Rs 1,900 can move to Rs 2,400 in six to eight months time. It is very consistent company with very limited downside risk from hereon.

Disclosure: I have no personal holdings in the stocks discussed.