Tulsian's top pick for the day: Wheels India

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 Wheels BSE | NSE 30/05/12 Are Mutual Funds betting on Wheels? Other Stocks in this news Essar Ports | Hindustan Construction Company | Tata Steel | JSW Steel | Jindal Steel & Power | Sterlite Industries (India) |

SP Tulsian of sptulsian.com selected Wheels India as multibagger stock pick for the day. Tulsian expects the stock to touch Rs 500 in the time span of two-three years.

"Wheels India is a TVS group company. The combined stake held by the promoters stands at 86%. The promoters wouldn't be keen to bring down their stake in the company. They might consider a merger which could be value unlocking for the stock. The company has a market cap of Rs 300 crore. From a two-three year perspective, the stock has the potential to touch levels of Rs 500."

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

On Wheels India

Wheels India is a TVS Group company. They make wheels for cars, buses, utility vehicles and tractors. About 50% of stake is held by TVS group, 36% is held by Titan Europe so 86% combined stake is held by the promoter. The promoters have to bring down their stake to 75% by June 2013. I don't think promoters will be keen to opt for disinvestment.

I am talking about the long term picture; June 2013 looks quite a long time. The market cap to turnover ratio it is at 12-13%. Their annual turnover is Rs 2,000 crore and market cap is Rs 300 crore . So, the promoters will be structuring some strategy like merger with some other group companies or delisting which could be big value unlocking for the stock.

The company has already declared their Q2 results. It has posted close to Rs 970 crore top-line in the first half of FY12 with an EPS of about Rs 19. The equity base of the company is low and stands at Rs 9.9 crore.  The debt of the company is largely for its working capital because it has a very high working capital intensive.

The enterprise value can be taken between Rs 450 to Rs 500 crore. The expected EPS is about Rs 40. The capacity of the company is quite high at 10 million wheels per annum.

They have six plants scattered all over the country. All plants are logistically catering to different requirements of different user. I find this stock quite undervalued. From a two-three years view, the share has potential to move to Rs 500. But the six months target on the stock is Rs 350.

Q: Would you continue to chase higher prices in Essar Ports the stock we were discussing yesterday?

A: No. That it is very difficult because whenever the stock has moved it remains calm for couple of months and suddenly we see these kind of up moves. I don't think that stock has the leg to breach three digit mark.

I am not saying that these kind of stocks are affected by overall pessimism in the market because they have a move of their own. They are immune to the overall trend of the market.

I don't think that this stock can move past Rs 100. This is very unfortunate stock. Though the fundamentals are very strong for but there is no sustainable move coming in.

A move to about Rs 96-98 or close to Rs 100 where profit booking will come. Again we will see the stock falling back to Rs 80. This is not a reliable stock even for long term investor and trader. I won't be advising long positions in the stock.

Q: How did you read the news on Hindustan Construction ?

A: Consistent bad news for the company. Last week we had hopes that they will probably be able to see some light at the end of the tunnel, but I don't think that is happening. The High Court has really passed strictures against the state government that is why they have been lethargic in not initiating action inspite of recommendations given by the environment ministry. The Maharashtra Government has now come in action and it is expected that probably the criminal action for the violation of the environmental laws are going to get initiated.

So on the whole, I think that it is a very bad time for the company; it is unfortunate as well. I don't think that they will really be any respite because of the kind of valuation damage it has already experienced and the Q2 results which were a shocker. The unfortunate part with HCC is that it seems that the parent company is totally focused on Lavasa. They have forgotten their responsibility and duty in managing the affairs of HCC as well, and that has in fact degraded the operations of HCC. The shed of Lavasa, which is 64% subsidiary, has really been killing the core business of HCC.

Even if Lavasa is knocked off for a while, though the major valuation is derived from there, as a fundamental analyst I am not too comfortable considering the core business and the way it is managed by the promoter of HCC. So it is unfortunate and I don't think that it will be possible for the company even to bring back the core business back on track in the next two quarters as well.

Q: Is the run over on metals stocks? There was some buying seen, but stocks like Tata Steel, Sterlite have started falling again.

A: I think that ferrous metal stocks have their own problem. Tata Steel has maybe Europe problems, JSW Steel again has their own problems and Jindal Steel and Power looks to have bottomed out.

But coming specifically to non-ferrous, I am maintaining my positive view, except for Sterlite because they have their own problem in respect to the Rs 9,000 crore divergence to Vedanta Aluminium, which is a serious corporate governance issue. I attribute the correction of Sterlite Industries from Rs 180 to Rs 120 to that that Rs 9,000 crore. This is nothing but a mockery of earlier scheme of restructuring which was rejected by the market.

So if you knock off Sterlite Indutries, I am maintaining my positive view on all the non-ferrous metal stocks, specially Hindalco and Hindustan Zinc. I don't think that you have much bottom; obviously with the a weak market they are also going to correct, but in my view both seems to have bottomed out and gives a very good opportunity to make an entry at these levels.