Tulsian's shopping list: Gujarat Gas & Suashish Diamonds

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Tulsian's shopping list: Gujarat Gas & Suashish Diamonds

SP Tulsian of sptulsian.com gives two multibagger ideas which he believes are good buys right now.

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SP Tulsian of sptulsian.com gives two multibagger ideas which he believes are good buys right now.

Below is the edited transcript of his interview. Also watch the accompanying video.

Q: You have picked out Gujarat Gas . When we spoke with the management yesterday, they were worried about production and the way the government delays would impact it. You would not have any problems with that?

A: That may be a problem in the temporary phase, but I don't think that is really a sustainable issue. In fact, the trigger for me picking up this stock is that the promoters want to exit from the company. The main promoter who holds 65% stake have given indications that they will be looking to exit from the stock and that is the big trigger. City gas distribution ultimately is the theme for the future because it is being eyed by Reliance Industries or the Adani Group, so there are many other players pan India. But this company is strong and they are the largest private sector natural gas distribution company with presence in Gujarat with pipe network of about 3700 kms.

If I take the financial performance of the company, for calendar year 2010 they had a turnover of about Rs 1800 crore and PAT of Rs 260 crore which translated into an EPS of 20. This kind of performance has been achieved by the company in the first nine months, that is about Rs 19 EPS, Rs 250 crore bottom line, Rs 1800 crore top line. Despite the management being a little apprehensive or not very comfortable with the short term scenario, the company has been posting a growth of 30-35% which is evident from the 9 months results. So one can make out what kind of future it holds. The talk which is going on is that if the LPG subsidy has to be phased out, then probably the pipe distribution gas has a play in the time to come and

Out of the net worth of Rs 1100 crore, Rs 600 crore is lying in the cash with the company and that translates to about Rs 50 per share. But what my point is that if you take the present market price of Rs 345-350, it gives you a market cap of close to about Rs 4500 crore. If you knock out this Rs 600 crore, the enterprise value works out to about Rs 38-3900 crore, which translates to about Rs 1 crore per kilometer of network. That is very low considering the replacement cost. In fact, this kind of infrastructure is being created by so many other companies but it is available only in very few states and cities.

So if present kind of network is created by so many other groups pan India, obviously this will be eyed by the potential acquirer. If the share is ruling now at a PE multiple of 14 on the historic, and even if I factor in a growth of 25%, the share is ruling at a PE multiple of 11-12. So I see huge value coming out of that. Only point is that who ultimately acquires this company when the promoter exits. So yes if somebody can keep a view of about 6-12 months, these events will get finished in this period and one can expect a price of Rs 425-430 or Rs 450 in next 8-10 months.

Q: Suashish Diamonds is the other one you have picked today?

A: The story for this stock is largely the delisting move. If you see, the promoters hold close to 90% and around 18 months back a delisting move was initiated. However, they did not succeed. If you see on a net basis or the net of the working capital, the kind of current assets they have and the packing credit or the bank finance they avail against shows that it's a debt free company.

If you see in FY11, the company had EPS of close to about Rs 32-33 which is likely to be close to about Rs 26-27 for this year, if you take that the share is ruling at a PE multiple of 3-3.5. But as I said, the financials probably may not attract me too much, but the deadline of10th June 2013 by which all companies have to bring down the promoter holding to about 75%. I don't think that promoters will really be opting to reduce their stake from 90% to 75%, so in that scenario definitely the second attempt will be made by the promoters.

The only concern is that mutual funds and FIIs are holding close to 7-7.5% stake in the company and since the promoters have their NRI base, sometimes it is apprehended that it should not be seen as a structured delisting move. Sometimes these large institutional investors or HNIs are seen as close to the promoters and they act as per the directions of the promoters. But if genuinely the delisting move is initiated, the price can get discovered anywhere between Rs 160-200. I don't think that it can really fall further from here on. The book value is Rs 323-330, so if you really want to protect your capital the maximum downside is of 10% from here on. But if you take a call with a view of delisting, which I have been harping repeatedly, the price can move to about Rs 150 in next 1 year or so.

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