Tulsian's picks: Shalimar Paints & Honda SIEL Power Product

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Tulsian's picks: Shalimar Paints & Honda SIEL Power Product

SP Tulsian of sptulsian.com picked out his favorite multi-bagger stocks for today on CNBC-TV18. He chose Shalimar Paints and Honda SIEL Power Products.

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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 Shalimar Paints BSE | NSE 30/05/12 Are Mutual Funds betting on Shalimar Paints? Other Stocks in this news Honda Siel Power Products |

SP Tulsian of sptulsian.com picked out his favorite multi-bagger stocks for today on CNBC-TV18. He chose Shalimar Paints and Honda SIEL Power Products.

On Shalimar Paints

Shalimar Paints, as name suggests, are into paint manufacturing and they have three plants in Kolkata, Delhi and Nasik. They have 54 branches and depots.

About six months ago, there was confirmation from the promoters, Jindal and Jhunjhunwala who collectively hold 62% with 31% each, that they want to sell the stock and at that time, the potential suitors showed interest in the company like Kansai Nerolac or the Sherwin-Williams who have to make their presence here felt in the country. At that time, the share moved to about Rs 950-1,000. But if we see the trading pattern for last fortnight, we see accumulation happening in the stock with volume ramping up from about 5,000 per day to about 25,000-30,000 shares per day. That indicates that probably we are now seeing revival of some interest in the business philosophy also. So the promoters can put the company on block.

If you see the financial performance, it has been flat for H1 FY12, EPS which was at about Rs 30 for FY11 will give an EPS of close to Rs 26-27. That means the lack of interest of the promoters are visible in the performance of the company for the current year, but if you see the paint industry, traditionally, they have been ruling at a PE multiple of 20 plus because this is the only sector having posted double digit growth in last decade.

Considering the brands, considering the product profile, considering the distribution network, though this is the smallest player amongst the paint industry, I think it is likely to see the valuation getting close to about Rs 800 or so. If the promoters opt to sell that entire 62%; 18% is held by six investors; and considering the open offer of 26% under the new guidelines, this is going to be a very good idea for any fundamental investors point of view to buy at Rs 400. One can at least expect a price of Rs 600 in next six months because I am quite hopeful on the stake sale news happening in this period.

Disclosure: I have investment in Shalimar Paints.

On Honda SIEL Power Products

This is a multinational company. They make generators, engines, farm equipment and operate in two spaces- agri equipments and the power generation space such as water pumps. In fact, these are largely catering to the rural and the agri sector and both are showing signs of improvement in terms of the growth and disposable income. Considering the power shortage situation, I think this is the product which is going to see good offtake in the times to come.

If you see the financial performance, Q2 of FY12 has shown some exceptional income of about Rs 20 crore, which company earned when they sold off their Rudrapur plant and the capital gain on the disposal of that plant's land, building etc.

Even if you exclude that extra gain the company, it is consistently making an EPS of about Rs 30 which was for FY11, and that is likely to be for FY12 as well. Even the dividend payout of the company is quite good at about 75% last year.

The company is debt free and they have Rs 110 crore cash in the books. The present market cap is Rs 330 crore. So if you take the enterprise value by knocking off this Rs 110 crore, the value comes to about Rs 220 crore on a topline of Rs 500 crore. That means it is ruling at a 0.4 times PE multiple of the topline on EV-basis.

Again, 68% stake is held by Honda. I am not playing strictly on the delisting theme, but in last one month or so, all these multinational companies have come on the radar and largely because of the delisting moves where the promoter stake is over 80% or over 75%. I think this is also a very fit case which can be kept on radar, not from a delisting point of view, but for good growth prospects. Taking all this into consideration, I am expecting that the price can move to about Rs 400 in the next six months with a very limited or virtually no downside risk.