Tulsian's 3 midcap picks to watch out for

Here is a verbatim transcript of his comments on CNBC-TV18. Also watch the accompanying videos.

On Apar Industries

Apar Industries are the second largest aluminium conductors and makers in the country.  The second business line is Transformer Oils which is the fourth largest in the world. In FY10, the company had some extraordinary performance. In the FY10 results, the bottom line was looking muted and that is a reason the share has been languishing for sometime. However, if you go by the H1 FY11 performance, if you extrapolate the same barely just by doubling, it is likely to far exceed than simply doubling it. The top line for FY11, is then likely to be Rs 2,500 crore and EPS is likely to be close to about Rs 40.

The company is sitting on cash on hand to the extent of about Rs 250 crore. The book value is close to about Rs 110. Since the EPS of Rs 40 is the cash accrual; the plough back of the cash is going to remain with the company to help them for having the good source of finance for the working capital. Therefore, taking all this into consideration, the share which is now ruling at Rs 217 looks quite reasonable and maybe if somebody can keep a view of about six to eight months the share can move to about Rs 280 to Rs 300 in this period.

On PBA Infra

I have a positive call on all the contracting companies. Though PBA has a small portion of BOT projects, also by SPV, but they can be classified more as a road making company. The company’s order book is of about Rs 750 crore and the topline is close to about Rs 350 crore.

You can say that they have the order of next two years with them. They have been aggressively bidding for the various road projects. If I go by H1 performance the FY11 should be having a topline of over Rs 350 crore to Rs 360 crore with topline and the bottom line with EPS of close to about Rs 10. If you take the book value as of 30th September, it is at Rs 76 to Rs 77 and the share is ruling below book value, maybe priced to book of about 0.9 and PE multiple of 7. When I compare this company with other comparable peers, they are ruling in the range of about 10 to 12 PE multiple, price to book of about 1.2 to 1.5. This company is quite in place, maybe, the concern is the larger working capital borrowing to the extent of about Rs 250 crore. However, since they have to aggressively implement that their own networth is close to about Rs 100 crore, probably, they have to resort to the higher borrowings.

Going forward with the road contracts coming in they are likely to get awarded by NHI, that will be a big booster for these kind of companies. PBA Infra looks quite reasonable and I won’t be surprised to see share moving to about Rs 90 to Rs100 in three to four months.

On Jayaswal Neco

Jayaswal Neco is on the transformation and is moving into the value chain. It is trying to make the integrated play from end to end. They have their own iron ore mines, their captive power making the steel or the casting which ultimately, fetches them a very good price. The present market cap is of Rs 750 crore and with the kind of valuations given to the steel plants, especially the casting makers, I see good value in this stock.

The management has been taking the steps to clean the books or to have the financials in place. The company has been allotted these mines also. Going forward at Rs 30, with any news flow coming in straight away the stock takes a jump of about 15% - 20% in a very short time. If somebody can keep a view of about one year, this should be able to give a return of about 40% to 50%. The stock could move to about Rs 42 to Rs 45 but one has to have a little longer horizon of about eight months to one year.