Tulsian's 3 picks: Kennametal, TVS Srichakra, ZF Steering

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Tulsian's 3 picks: Kennametal, TVS Srichakra, ZF Steering

SP Tulsian of sptulsian.com, in an interview on CNBC-TV18 gives his cues on select stocks like Kennametal India, TVS Srichakra and ZF Steering.

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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 Kennametal BSE | NSE 01/01/70 Are Mutual Funds betting on Kennametal? Other Stocks in this news TVS Srichakra | ZF Steering Gear (India) |

SP Tulsian of sptulsian.com, in an interview on CNBC-TV18 gives his cues on select stocks like Kennametal India , ZF Steering and TVS Srichakra .

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

On Kennametal India:

They make innovative and high-end metal cutting tools which are largely catered to the defense, energy, aerospace and specialty applications. There is a multinational company where the promoters hold over 88% stake in the company.

The company's financials end in June and if we go by their financial performance for the last nine months that is the period ending March 31, 2011, the company has shown a rise of 27-28% in its topline with sales at Rs 335 crore. But the bottomline has improved by 60% on a comparative nine month period if I take for FY10, resulting into an EPS of about Rs 27 for nine months.

If we extrapolate generally always the fourth quarter which is the June quarter, it has traditionally been good for the company and one can expect Rs 37-38 EPS. Apart from that, because all multinational companies have a debt fee status, generally, companies who have promoters stake as high as 88%, it is a foregone conclusion that all of them will be initiating a delisting move.

If you take cues from Atlas Copco which has been the recent case, they all have been happening at a PE multiple of more than 30 and since the share is now ruling at a PE-multiple of 16-17 that too on a historic earnings. All these processes have to be get implemented by March 2013 which is the deadline for the promoters to get back their stake back to 75%.

Again, there is a sweetener of the delisting move which is likely to get initiated by the company. At this Rs 600 level the stock looks very good. Even of a PE multiple on the forward it is ruling at 14-15 times but a delisting move which is likely to get initiated maybe in the next 12 months time can take the share price to Rs 800 to 850. But it is a very safe stock to remain invested in and keep in the portfolio.

On TVS Srichakra:

I have not been holding a positive view on the tyre stocks because of rising prices. This is because the pricing power is not available to the manufacturer but this company seems to be an exception largely because of the high profitability or because of the very low equity base maybe closer to about Rs 8 crore. If you see their EPS it is at about 50-51 while their cash EPS is as high as 72-73.

This company makes two and three-wheelers tyres and tubes, the complete range. They supply to TVS Motors, Bajaj Auto, Hero Honda, to all the two-wheeler majors. Their topline has been close to Rs 1,100 crore for FY11 and the company has declared a dividend of 125%. So it's a very stable financial performance.

On their pricing power, one can say that that seems to be different in case of this company maybe because of their good relations with the customers or maybe the cost control which the company has because we have been seeing the increase in their financial performance every quarter. I consider this to be a very safe stock and a price target of Rs 400 can be seen in the stock in the next six-eight months time.

On ZF Steering:

They are makers of mechanical and power steering system and is supplying to all four-wheelers which includes cars, SUVs and even commercial vehicles and tractors. If you see their financial performance for FY11, they have posted a growth of about 36% in their topline and 40% in their bottomline with topline being at Rs 300 crore, PAT of about Rs 41 crore, EPS at Rs 45 and cash EPS of Rs 62.

If we go by the shareholding pattern, the company has a German collaboration on their financials and technical's and of the 73% promoter stake, 27% is held by the German collaborator and remaining 46% is held by the Indian promoter that is Firodias.

The company has been consistently increasing their PAT margin every year maybe by about 50 bps or 100 bps. So, one can say that the volume growth is mainly driving the bottomline of the company without having any dent on their margin. The same trend is likely to continue because we are going to see the sales of the vehicles remaining constant and maybe at a growth of 5-7%. Taking all these into consideration, the share at Rs 318 looks quite good.

If you take Rs 50 also, as a conservative EPS for FY12 it is ruling at a PE multiple of close to about 6. So maybe the share should be able to give you a rate of about Rs 400 in the next six months time from hereon.

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