Tulsian's multibagger picks: IL&FS Eng, Hind Dorr Oliver

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 ILandFS BSE | NSE 29/05/12 Are Mutual Funds betting on ILandFS? Other Stocks in this news Hindustan Dorr-Oliver | GTL | GTL Infrastructure | Pipavav Defence and Offshore Engineering Company | TD Power Systems | Arvind | SKS Microfinance |

In an interview with CNBC-TV18, SP Tulsian of sptulsian.com talks to investors about two of his multibagger picks -  IL&FS Engineering and Hindustan Dorr Oliver .

On IL&FS Engineering

For the last six months, this company has been struggling, more on account of the debt restructuring, logging their claim with Satyam Computers in which they have logged at about Rs 350 crore and they are confident of receiving it as well, they have also received a one-time settlement with the debtors and they have inducted an investor from Middle East who is holding 32% stake which was acquired at Rs 185. Subsequent to that acquisition, the open offer came in at Rs 195. Everything is now in place. You have the investors with IL&FS holding 32% stake by that overseas investors from the Middle East.

The institutional holding is quite high leaving the public float at just 10%. As the one-time settlement happened, re-schedule of loans happened and the net debt in the books of the company on a consolidated basis is left at about Rs 850 crore. Their core business has been doing quite well with a topline of Rs 1,000 crore and the profitability has to improve.

If you see their business portfolio, they are holding stake in various infrastructure projects like rail, power projects, bridges, infrastructure, roads etc. With IL&FS as the promoter and though the overseas investors has not been named as a promoter pursuant to the order of the company law board but collectively it should be taken that 70% stake is held by both the promoters.

The marketcap of the company is quite low. This can prove to be a really good stock provided one can keep a view of about 12 months. I won't be surprised to see the price moving back to about Rs 160 to Rs 180 in the next 12 months or so.

On Hindustan Dorr Oliver

IVRCL is a promoter in the company holding 55% stake. IVRCL is passing through a huge cash crunch at their end and they have been divesting their stake in various infrastructure projects. About four to six months back, there was talk that they were seriously looking at divesting their Hindustan Dorr Oliver 55% stake which was confirmed by the management of IVRCL as well.

If you go by the business model of the company, it is an industrial Engineering, Procurement and Construction (EPC) player catering to all the core sector industries like fertilizer, power, water, water management, waste management etc. They make industrial equipments like heat exchangers, storage tanks, solid and liquid separation equipments etc.

The performance of the company is quite robust. For FY11 it posted a topline of about Rs 950 crore with an EPS of close to about Rs 7. Going by the same trend, I do not think there should be any problem considering their order book. So, the share is ruling at a PE multiple of less than Rs 6. In the last one week we have seen informed buying taking place in the stock which has made the share move from Rs 36 to Rs 44-45.

That indicates that something must be cooking up and we may see the news resurfacing of the promoter intending to sale their stake. I won't be surprised to see a price of Rs 70-75 being realized by the promoter on sale of their 55% stake. That will lead to the open offer. That will re-rate the whole stock. One can expect a price of Rs 60 in the very short-term, maybe in three-four months time. If an investor can keep a view of about one year, I don't think the stock is really bad from hereon at these levels.

Super Six trading ideas for the day

Below is a verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Watch the accompanying video for more.

Q: What did you make of the big jump in GTL and GTL Infra on Friday?

A: On the debt restructuring, we hear information that probably they got some waiver of the interest capped at 11%, moratorium of two years, repayment schedule of eight years. It looks like the restructuring of the debt plan has been crystallized. That has been taken well by the market.

We have been taking a call that probably Rs 75 looks like a fair price for the company. I am not too enthused on the fundamental basis beyond that point. Whatever correction which has happened in the last one-and half month, the stock has corrected from Rs 75-80 to as low as Rs 50. Whenever you see these kinds of newsflows coming in you see a concentrated jump coming in largely in the form of short covering.

The counter was sitting very heavily short and probably that could be the reason. I don't think there is much upside beyond Rs 75 in the stock to move on even if we consider the loan restructuring of the company as well as of GTL Infra.

Q: The observation this morning seems to be that while finding any clear allegations of price manipulations in cement, it may be difficult but prices themselves may not move higher for a long time?

A: There are two issues. The capacity addition has already taken place with expectations of 50 million tonne in the last three months and in next six months or so. The demand cannot really match up because you have a growth of about 8 or 9% on a present installed capacity of 300 million tonne so definitely the pricing power will not be there with the cement company.

I maintain my view that I am worried on the cartelization which has been investigated by the competition commission. It may look like there were no such issues but you do not know what findings and all is examined by the CCI and that can really be a problematic area for three companies, plus, other companies which are included in that list.

Going forward, I am not very positive on the cement sector as such because of the pricing power coming back or maybe because of the cost offset likely to happen in the coming time because of the excess capacity having been created in the sector.

Q: What have you made of the listing of TD Power which has now settled above Rs 300? What do you think is the fair value for that one?

A: If you see the financial performance of the company, their topline is at Rs 900 crore, they are posting an EPS close to Rs 25, that can really get compared very well with performance of BGR Energy. BGR Energy has this kind of performance in one quarter. I am not talking of their June quarter results which was a little subdued but they have been consistently posting a topline of Rs 1,200 crore with a PAT margin close to about 6%.

TD Power has posted an EPS of 25, with a topline less than Rs 1,000 crore. I don't think that one can really give a PE multiple of 6 because BGR Energy is ruling at a PE multiple between 6 to 7 times plus they have an order pipeline of about Rs 8,000-9,000 crore. In TD Power they have an order pipeline of Rs 1,000 crore.

It is very much comparable but I can say there is a speculative element which has crept into the price merely on the feeling that the share has a fundamental value. But I won't attribute a valuation beyond Rs 150 and in the next one month or so, once you see the operations come to an end or tapering off, the price has to settle anywhere between Rs 150-160.

Q: What did you make of the newsflow in Pipavav last week because that stock held above the Rs 80 mark?

A: I am expecting some newsflow. The company is likely to announce some good JV which can really give a big break through or may get the stock re-rated. It is likely that they are going to announce that JV today or tomorrow which is likely to give them the order visibility on a horizon of the next 10 years or so.

Apart from that, maybe in the next 10-15 days, they are going to see some order flow from the MOD which can also be the additional sweetener. I do not think that alone, the issue of warrants is the key factor for the stocks to be ruling positive for last three-four days but on hopes of these two newsflows the share seems to be positive behaviour going forward.

Q: Another news doing the rounds is SKS Micro where the stock was up 30% last week?

A: I have been watching the kind of newsflow where the operator game is going on. They buy the stock then they sell the stock. The name of one person comes in this stock. I don't think this kind of behaviour is anything good for the stock because I don't think purely on the performance you can expect the share to perform well. If they have posted a negative EPS of Rs 20 for the quarter, I don't think there are any hopes for turnaround for the company. The price to book is already at 2 times. Maybe these are more of the speculative or informed buying activity. I won't be surprised to see the share start correcting once it reaches Rs 280-285 level.

Q: How are you approaching Arvind which moved quite sharply on Friday?

A: I have been maintaining my positive view but I do not think one can jump in now because if you see the stock has already moved from Rs 78 where it used to rule maybe about 10 days back to Rs 92, already a jump of 20%. I have been maintaining my call that it has the potential to breach the three digit mark in the next couple of months, largely on account of the initiative by the management plus the better working which is likely to result into double digit EPS for Rs FY12.

Taking all this into consideration, one should keep a positive view on the stock. If it corrects because which is likely, we are seeing the correction in the stock bringing it down back to about Rs 82 to Rs 84 that can really be a good entry level and one can expect a price of Rs 100 in the next couple of months or so.