Tulsian's multibaggers: Butterfly Appliances & Saregama

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Tulsian's multibaggers: Butterfly Appliances & Saregama

SP Tulsian of sptulsian.com picked out his favorite stocks for today that he says are fundamentally strong to return well over a period of time.

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SP Tulsian of sptulsian.com picked out his favorite stocks for today that he says are fundamentally strong to return well over a period of time. Check out his comments on Butterfly Gandhimati Appliances and Saregama.

On Butterfly Gandhimati Appliances

You can call this company a mini- TTK Prestige . They are into making stainless steel appliances, pressure cooker, kitchen and household appliances, and they practically have the same product range.

The reason for good growth in this stock is largely because of TTK prestige. The kind of run up and the kind of valuations which have been given to TTK prestige with a PE multiple of about Rs 25 plus and still the stock is going strong.

Butterfly Gandhimati Appliances has added Butterfly to its brand name, which earlier used to be Gandhimati Appliances. The financial performance of the company has been exemplary. For first nine months of the current year, they had a turnover of Rs 400 crore plus while that was about Rs 200 crore plus for the similar period in the previous year for nine months ended December 2010.

Similar is the case with 100% growth in topline and 120% growth in bottomline. The PAT for nine months of the previous year was at Rs 11.5 crore and for these nine months, the PAT is at Rs 25 crore.

And if you see their Q3 performance, it is exactly the same at Rs 225 crore, with PAT of about Rs 11.5 crore. That means what they have achieved in nine months of previous year, that is FY11, has been achieved in Q3 of FY12, and the same growth is likely to get continued. The EPS of Rs 16 which has been posted by the company for first nine months of FY12 is likely to be in my view at about Rs 27-28. They may not be able to hit Rs 30 EPS though.
 
The company has a debt of about Rs 90 crore in its books which is largely for financing working capital because this industry is highly capital intensive. They have to have the inventory, they have to have debts, finished goods and all sort of things.

Apart from this, the promoter stake is expectably high at about 78% with 9-10% held by HNIs. This stock also has come into the limelight with the recent announcement of Q3 results. So taking all this into account, I am expecting the share has the potential to move to about Rs 500 in the next six months or so.

On Saregama

Saregama is a very interesting story. We know that they have the music rights of the old films for the last over 60 years. But sometimes the company or management makes mistake. The biggest mistake by the company has been venturing into film making and TV serial production. That has been the drag on the profitability. Whatever company has been earning in the music rights-42% EBIT margin in the music segments-has been going into the drain on making of the films and TV serials. They cannot just abruptly close down that division because there are on going projects.

If you see for FY11, the company had a turnover of about Rs 20-21 crore for the film division and they had a similar loss of about Rs 21-22 crore. But for the current year nine-months, they had a turnover of Rs 21 crore but the losses pruned to about Rs 13-14 crore. That means the process of winding up or the process of liquidating the business or reducing the business seems to be there for this division.

And if that happens, then the music rights held by the company, can really be a money-spinner because the kind of business they are now generating from this FM radios and the telecom companies because of the huge demand for the old songs, old tunes etc, That is a reason for the company posting excellent results again for Q3.

For nine-months, they had a turnover of Rs 110 crore against Rs 88 crore posted for the similar period last year and their PAT has improved to about Rs 6 crore, which was at Rs 1 crore for similar period in the last year and similar story that Q3 results has been extraordinary on a topline of Rs 40 crore they had a PAT of close to Rs 3.5 crore. This trend is likely to continue.

Apart from that, if you see the financials, they are very strong. The company has debt of close to about Rs 50 crore but they are holding 15.5 lakh shares in CSE, which is again an RPG Sanjeev Goenka group company, which has a market value of about Rs 40-42 crore and this company has a very strong real estate holdings in the form of offices, lands and the studios and all that, the net present value of that is calculated at close to about Rs 200-250 crore.

If you see market cap of Rs 130 crore, the debt of the company is at Rs 175-180 crore. As against that, if films and TV serials stops incurring the losses or if that division gets sold the company is capable to post an EPS of close to Rs 9-10 and the music company available at a PE multiple of Rs 7-8 on the forward expected earnings. This makes it a very good buy and one can expect a Rs 100 in next six months or so.

Disclosure: No interest or holding in any of the stocks.