Tulsian's multibaggers: Thomas Cook, Sterlite Industries

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Tulsian's multibaggers: Thomas Cook, Sterlite Industries

In an interview to CNBC-TV18, SP Tulsian picked Thomas Cook and Sterlite Industries as multibagger stock picks for the day. He expects these stocks to fetch better returns ahead.

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In an interview to CNBC-TV18, SP Tulsian picked Thomas Cook and Sterlite Industries as multibagger stock picks for the day. He expects these stocks to fetch better returns ahead.

He expects Thomas Cook to touch Rs 60 in the next six months. He feels that the stock is an attractive buy at the current level.

Considering the cash flow earned by Sterlite Industries every year and plans ahead, Tulsian feels that the stock has bottomed out at Rs 102-103. He expects to see a price of Rs 150 in 12 months.

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

On Thomas Cook

A: The pledge created by the parent company, Thomas Cook UK in favour of Royal Bank of Scotland led to confusion and resulted into the share hitting its 52 week low, close to Rs 32.50. But since then it has been seen that this could just be a trigger for the stake sale by the parent in the Indian arm. Talking about the Indian arm business, the integrated travel group company is also dealing in forex. They have a very robust business model; they have about 180 branches in 72 cities. Their balance sheet including their 100% subsidiary Travel Corporation of India, the real estates held by the company on a consolidated basis, the book value is about Rs 50 crore. The present market value of that is estimated to be at about Rs 400 crore.

For nine months of the current year, they have posted topline of Rs 275 crore with EPS close to about Rs 2.40 paise. This means for calendar year '11 they will be having an EPS of Rs 3.20 paise, Rs 3.30 paise. Since the Royal Bank of Scotland has given the facility to the parent in UK, it looks like they have taken this as a pledge with an intent that promoters will exit from the Indian business.

If they do so, in my view they can fetch valuations of as high as Rs 75-80. Since 77% stake is probably going to put on the block, the open offer of 26% can lead to very good value unlocking. It is learnt that Mercury Travels, Cox & Kings and one or two global players, are all eyeing stake in the company. I am taking a valuation call of anywhere between Rs 75-80 because of their present marketcap of Rs 800 crore and their debt free status.

I don't think that one will give a valuation of less than Rs 75 per share because the share on earning basis is also ruling at a PE multiple of Rs 10 while Cox & Kings is ruling at PE multiple of Rs 20. I am expecting that price can move to Rs 60 in the next six months. Otherwise also if one remains invested in the company, it is a very attractive to buy the stock now at the current level.

On Sterlite Industries

A: It is a very interesting integrated non-ferrous metal play. Sixty five percent stake of Hindustan Zinc is held by this company, 51% in BALCO and 29.5% in Vedanta Aluminium. There are talks that government is willing to shed their 49% in BALCO in favour of Sterlite Industries. Sterlite Industries can then become 100% owner of the BALCO. The kind of valuations being talked for 49% stake of BALCO is close to Rs 2,800 to Rs 3,300 crore.

The market capitalisation of the company is about Rs 34,000-35,000 crore and 65% of the stake held by the company in Hindustan Zinc is having a market value of about 35,000 crore. I don't think that this can be given as an investment value because result of Hindustan Zinc is getting consolidated.

Coming to the financial performance of the company, their topline was close to USD 8 billion considering the first half and EPS was about Rs 16-17, this means share is ruling at a PE multiple of 6. I don't think that this kind of valuations have ever been given even to pure ferrous or non-ferrous metals. This is because non-ferrous metal stocks have always carried a higher PE multiple of about 200 bps than what it is given to the stocks like JSW Steel, Tata Steel.

Traditionally, they have all been ruling at a PE multiple of 9 to 10, so in my view even this should rule at those levels. Even the financial position of the company is not very bad. They have a net debt of about Rs 5,000 crore. Considering the cash flow earned by the company every year and plans ahead, the stock looks to have bottomed out at Rs 102-103. If somebody can keep a view of about 12 months they can see a price of Rs 150.

On Tata Steel  and other ferrous metal stocks.

A: Yes, all ferrous metal stocks seem to have bottomed out, considering the improvement on the iron front and price stability. SAIL, Tata Steel and JSW Steel are looking good. I was circumspect on all these stocks a month back because the situation was not very clear. But if we go by the present scenario and we see offtake happening it seems that even Tata Steel which was heavily short seeing fresh buying as well. I will definitely go for buying the stock at current levels.