Tulsian's top picks: UB Engg, Nilkamal, Tube Investments

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Tulsian's top picks: UB Engg, Nilkamal, Tube Investments

SP Tulsian of sptulsian.com has picked UB Engineering , Nilkamal and Tube Investments as his top bets for the day.

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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 UB Engineering BSE | NSE 29/05/12 Are Mutual Funds betting on UB Engineering? Other Stocks in this news Nilkamal | Tube Investments of India | GEI Industrial Systems | Hindustan Dorr-Oliver | Wim Plast | Supreme Industries | Uttam Galva Steel | Lloyds Steel Industries | JSW Steel | Bhushan Steel | Cosmo Films | Polyplex Corporation | Jindal Poly Films | KRBL |

SP Tulsian of sptulsian.com has picked UB Engineering , Nilkamal and Tube Investments as his top bets for the day.

"UB Engineering is engaged in execution of EPC and infrastructure projects. For FY12 their EPS is likely to be at Rs 18 and topline is expected to stand at Rs 720-750 crore. I am expecting a price of about Rs 120 in next six months time. One can keep a time horizon of six- eight months for a price target of Rs 125."

"I have been holding positive view on the plastic industry. The company is expected to post a growth of around 20% and EPS of Rs 40 in FY12. The promoter's stake in the company is 61% and institutional investors are holding about 19% and hence it is not a very liquid stock. One has to keep a time horizon of 6-8 months with a price target of about Rs 350 on the stock."

"Tube Investments is a part of the Murugappa Group and it holds 74% stake in Cholamandalam Investments & Finanace. It is portfolio stock and one can hold it from three - five years perspective and expect a CAGR of 20-24%."

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

On UB Engineering

A: This is the engineering arm of the United Breweries Group. The business model of the company is quite strong, they are engaged in EPC projects, infrastructure. They are also catering to the fertiliser, power, cement, steel, desalination plant from erection to commissioning.

For, FY11 they had a topline of about 610 crore and posted an EPS of Rs 14.80, close to about Rs 15. The share is now ruling at a PE multiple of close to about 5. FY11 was not a good year because in FY10 they had an EPS of more than Rs 18. Because of some contraction of margins in some of their contract they have only been able to restrict their EPS to Rs 15.

Last year, there was news that the promoter of United Breweries group may look to exit from the company because this seems to be a unrelated business for them. On that hope the share price move to Rs 220 last year, if you see its 52 week high.

Going by pure core fundamentals, FY12 should be having a topline of close to about Rs 720-750 crore with an EPS of close to about Rs 18. That translates into a PE multiple of 4. The present book value of the share is at about 75 as on 31 March, 2011, share is ruling at a price to book of one time on historic book value.

Taking all this into consideration, the kind of valuations which we see in other engineering stocks like GEI , Hindustan Dorr-Oliver , they have all been getting a PE multiple of anywhere between 8-12. So, there is no justification for this stock to rule at such a low valuation.

I am expecting a price of maybe about Rs 120 in next six months time. If the stake sale news gets revived by the promoter, share could even move pass to Rs 150. One can keep a time horizon of six- eight months for a price target of Rs 125.

On Nilkamal Limited

A: I have been holding positive view on the plastic industry. There are many significant players like Nilkamal, Wim Plast , Supreme Industries and I have been maintaining my positive view on all these stocks.

Nilkamal has seven manufacturing plants, they have 49 offices. For FY11 they have posted an EPS of about Rs 36 on topline of Rs 1,300 crore. They have strong presence in material handling, furniture segment and other plastic products. They should be able to post a growth of at least 20% in FY12 so that should translate into a topline of close to about Rs 1,500 crore and EPS of close to about Rs 42-43.

Their present marketcap is close to about Rs 400 crore. If you see a small portion of debt which is to the extent of Rs 200-250 crore is largely used by the company for working capital finance. One can say that on a net of working capital basis the company can be termed as a debt free.

Taking all this into consideration share is ruling at a price to book of close to about 1, their present book value is close to about 240. If I add the expected EPS of Rs 40 for FY12 it should give a book value of close to about Rs 280 and even on the PE multiple basis its ruling anywhere between 6.5 to 7 times on the expected EPS for FY12.

So this has a lot of potential, the only concern is that its not a very liquid stock. It is having a very thin volume but that is largely because of the high promoter stake of 61% and institutional investors are holding about 19%. There is a float of about maybe 18-20% which looks reasonable. One has to keep a time horizon of 6-8 months with a price target of about Rs 350 on the stock.

Disclosure: I have no personal holding in any of the stocks discussed

On Tube Investments

A: This is a company of Murugappa Group engaged in engineering, metal formed products plus machinery components for the cycles and electric scooter division. Apart from this the company is holding 74% stake in Cholamandalam Mitsui Sumitomo General Insurance Company which has already turned profitable.

Apart from that they have 61% or more than 61% stake in Cholamandalam Investment and Finance Company also. Couple of years back when DBS have moved out of Cholamandalam Investment and Finance Company, Tube Investments made a huge investment and have acquired the majority stake in this NBFC which has an assets of Rs 9,000 crore. In the last couple of days we have been seeing renewed buying interest in Cholamandalam Investment and Finance Company also.

So maybe taking the interest of the subsidiaries in insurance and NBFC apart from their core business, I find this stock as quite robust. One can have in the portfolio with a time horizon of maybe three-five years and can expect to have a return of 20% kind of things.

One may not expect a quick returns maybe in three-six months time horizon but one can expect a return of 20%. Their topline of close to about Rs 5,000 crore and EPS is in double digit on a face value of Rs 2 and the company has been performing consistently. So this is indeed a kind of portfolio stock which one can have in the portfolio with a three-five years view and can expect a CAGR of about 20-24% each year.