What are Tulsian's top 3 picks for the day?

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 Tata Comm BSE | NSE 29/05/12 Are Mutual Funds betting on Tata Comm? Other Stocks in this news TIL | ZF Steering Gear (India) | Nagarjuna Fertilisers and Chemicals | DCM | DCM Shriram Consolidated | Parsvnath Developers | Housing Development Finance Corporation | GIC Housing Finance | LIC Housing Finance | Reliance Communications | Unitech |

In an exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee, SP Tulsian of sptulsian.com picks stocks he sees the potential rising in the next six to eight months time. He sees value in Tata Communications , TIL , ZF Steering from a time period of six months to a year.

He says the sudden resurgence of interest in Tata Communications stock is well worth. "Tata Communication share can move to about Rs 350 in six months. I am positive on Tata Communications; there is a huge value lying in it," he adds. He is upbeat on Tractors India Ltd (TIL) and says, "Don't see any downside on the stock and the upside can move to about Rs 700 in next six months to one year time horizon." He also sees potential in ZF Steering and expects to rise up to Rs 400 to Rs 425 in next six to eight months.

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

Q: What have you made of the Tata Communications stock?

A: There is an interesting move, in fact this is a long overdue the hiving off of the 773 acres held by the company. In 2002, when the company was divested to Tata Group, it was part of the agreement that 773 acres held by the company will be hived off to a separate company and all the shareholders prevalent of the company at that point of time will be given the benefit. Therefore, even the public shareholders those who have tendered the shares in 2002, pursuant to that open offer of 20% made by Tatas, will also are entitled for the shares which will be either the sale proceeds or the company which will be created on hiving off the 773 acres. However, it is unfortunate that the public shareholders, who have tendered their shares nine years back haven't heard anything.

The 773 acres land is located in Kolkata, Pune, Chennai and Delhi. The land parcel held by the company in Delhi is about 128 acres, out of which 70 acres is in Chattarpur and 58 acres in the Greater Kailash, which is the most valuable parcel of the land. The valuation of that parcel alone in Chattarpur and Greater Kailash is about Rs 5,000 crore. Even if you take a valuation of about Rs 2,000 crore to Rs 2,500 crore for remaining 600 acres or 650 acres held at three other places, it gives total valuations of about Rs 7,000 crore to Rs 7,500 crore.

Four to five years back the Tatas had written a letter to the government which said that hiving off the process will attract a stamp duty of close to about Rs 500 crore and who will bear that burden of Rs 500 crore or implementing this whole process. The Rs 500 crore stamp duty now translates into a valuation of about Rs 6,000 crore to Rs 8,000 crore. We have seen a significant increase in the valuation of the real estates held at all the locations. I won't hesitate to give a valuation of about Rs 8,000 crore to Rs 10,000 crore to this land parcel but even if I presume it to be at Rs 6,000 crore and the present number of shares issued by the company at 29 crore shares. Therefore, it gives a valuation of about Rs 200 to Rs 220 per share and it is an attractive sum of part held or embedded in this present share price.

The public shareholders, who will be buying shares now from the open market will be entitled for benefit, as whatever sale proceeds will come in, about 51% to 52% will go to the government because - 25% is held now by the government, 26% they have divested, 20% will go to the old shareholders who have tender their shares and 26% to 28% shares that are presently held by the public shareholder in the company will be given to them.

The Tatas won't be entitled for any benefit of the land hiving of. Hence, this is going to be a big trigger. Once you see the process getting initiated, once the roadmap or the blue print of the hiving off or the benefits or the sale plans getting crystallised, share can move to about Rs 350 because this has a huge value lying. If you give a valuation of about Rs 150 for the core operations, the company share has all the potential to move up to Rs 350 in six months time. Hence, for this reason I am holding positive view on the stock.

Q: The other stock that you have picked is Tractors India Ltd (TIL). Why do you like it?

A: TIL is the total solution provider to the heavy engineering industries, especially, in -construction, power, and material handling. They are the distributor of the Caterpillar of the earth moving equipments as well. For the east and northern part of India they have collaborations with the global companies for the various product profiles.

For FY10, the company had posted a top-line of close to about Rs 1,050 crore with EPS of about Rs 60. For the past nine months, they have already achieved the top-line of about Rs 30,040 crore. There is slight dip in the PAT because in FY10 the PAT was Rs 60 crore for whole year and for nine months the company has achieved a PAT of close to about Rs 40 crore.

The Q4 of the company is always better with better margin and top-line. I am expecting the company to post EPS of close to about 55-56 for FY11 but FY12 is likely to be good. The order flow that company has been seeing in the last three months or so will give them the better margin in the time to come. If I presume an EPS of close to about Rs 70 for FY12, the share is ruling at about Rs 500 which translates into a PE multiple of 7 and even if I go by the historic PE multiple, it is ruling below 10.

Generally, these kind of companies have been traditionally ruling at a PE multiple of close to about 15-16 times. Therefore, I don't think that you have any downside on this stock but on the upside the stock can move to about maybe Rs 700 in next six-eight months or one year time horizon.

Q: What have you made of ZF Steering?

A: They are making the manual and power steering gear for the commercial and utility vehicle sector. This is a joint venture company of Firodia and ZF Group of Germany and both these promoters are hold a combined stake of about 74% in the company. Generally, in auto ancillary, wherever you have the pricing power available with the company those companies are traditionally ruling at a higher PE multiple. However, this company has been showing a lot of volatility. We have seen share price moving to about Rs 500 and again correcting to the present level. However, in my opinion the company is enjoying the pricing power because if you see their FY10 performance.

In FY10, the company's top-line was Rs 210 crore with PAT of about Rs 30 crore and for nine months they have achieved the similar PAT and similar top-line. Therefore, there is a 33% to 35% growth in place for the company in the time to come. For FY11, they should be able to post an EPS of close to about Rs 45 and going by that in FY12, they should be able to post an EPS of close to about Rs 55 to Rs 56.

Going by the present market price, the share is ruling on historic earning at 6-6.5 time PE and on the forward earning it is ruling at a PE multiple of 5. Hence, in my view this looks to be quite attractive stock in the auto ancillary space, supplying a critical component used by the commercial and utility vehicle. The share has potential maybe to rise up to Rs 400 to Rs 425 in next six to eight months.

Q: How have you read the news flow on the fertiliser space especially for the urea bunch?

A: I don't think there is any solution in the immediate future. Looking at the concerns expressed by the inefficient units like Nagarjuna Fertiliser , DCM Shriram Consolidated , I don't think that government can evolve over uniform policy that can apply to all the urea makers since there are so many issues involved. The only positive is the pulling of gas that has been decided in principle. It will ultimately be distributed at a uniform cost but apart from that there are many issues like feedstock migration, greenfield capacity creation, the losses incurred by the inefficient units and maybe, the non-availability of gas to all the companies.

I don't think there are much headway except for NFL and GNFC having initiated the feedstock migration. I don't think that Nutrient Based Subsidy (NBS) can get implemented for urea this soon. There has to be series of meeting and it can take six months to a year's time even at the group of minister level also. However, progress will take long and it will be slow and steady in all directions.

Q: What is the news flow on Parsvnath Developers ?

A: It is more to do with selling their properties which they have been holding in SPVs. In fact they have exited from many of their properties in Ahmedabad, Jodhpur, Jaipur because those properties were held at the outskirts of the cities and now they have started exiting from prime region like NCR and all where they have a strong presence.

Therefore, whenever you see this kind of moves coming in, I don't think it can help the company either to generate the working capital or to accelerate the project progress because that has more to do with the deleveraging. Some of the new lands have been acquired by them pursuant to the tender from the government and the semi-government authorities, therefore, maybe that money will get use to repay the installments or the payment for acquisition of those lands. Hence, on net basis they will continue to remain heavily leveraged, they will continue to have the liquidity pressure with concerns on their execution capability.

Q: How have you been reading the news flow on Reliance from the Directorate General of Hydrocarbons (DGH) over the last few days? Where do you think the stock should stabilise now?

A: There is a lot of confusion because if you see the approach or the announcements made by the DGH, they have been directing the company to accelerate the gas production either by exploring the new blocks and other such things. However, looking to the positions in D1, D3 blocks, I don't think that production can get ramped up beyond 37 mmscmd for whole of FY12. I am not taking a call on FY13, where the company has said that even in FY12 and FY13 the production is likely to be at 37 mmscmd.

There is no concern at MA block because it is likely to remain at 9 mmscmd. Given the situation, the drop in the gas production in FY12 will largely get negated by increase in the margin or will get compensated by increase in the margin of petrochemical refining sector. Therefore, overall I don't think that you can take a call of earning beyond Rs 70 to Rs 72 for the stock for FY12, unless you have the clarity, one has to wait for the Q4 results to come for some indications. Therefore, in this background I won't be taking a call on stock beyond Rs 1,050 at this point of time.

Q: Any fundamental news on LIC Housing, it's up about 12% in the last three days?

A: In this last one week or so, all the housing finance stocks have corrected whether you take the call on HDFC , GIC Housing or LIC Housing due to the fear that they may not be able to post a growth of 20% qwing to interest rate hardening. However, since all the stocks have corrected, and GIC Housing yesterday has moved in double digit, I think LIC Housing has been under accumulation for quite sometime because there was no reason for the stock to rule at a level of Rs 175 to Rs 180.

We have seen huge accumulations happening in that stock around those levels. Hence, the overall positive view is now being arrived at on all the housing finance companies, especially on HDFC, LIC Housing and GIC Housing.

Q: What is the right way to approach some of these names like Unitech or Reliance Communications where we will see more information on the CBI charge sheets and these stocks have been languishing a bit over the last day or two?

A: I don't think that there is any point in taking call on all these stocks because the charge sheet is likely to get filed on 31st March. However, if you take a call on Unitech, it has in fact risen in last one week because of an upgrade by a broking house. I don't think that you have comfort on the realty front and same thing is happening on Reliance Communications because there has been news of selling the towers by the company. However, I don't think that valuation is likely to be really comfortable to the company. Therefore, taking all these into consideration, if you don't have any stock specific fundamental news coming and the fear of 2G scam charge sheet getting filed in next couple of days, it is advisable to remain away from these stocks, neither to trade on the lower side nor on the upper side.

Also read: No triggers to take market past 5,800: Ambareesh Baliga