Which multibagger stock ideas does SP Tulsian recommend?

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SP Tulsian of sptulsian.com, in an interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee spoke about his multibagger ideas.

The stocks that he is focussing on are Greaves Cotton, RCF, Amara Raja Batteries, Jain Irrigation, Siemens, Unitech, JP Associates, Nirma and Binani Cement.

Below is a verbatim transcript of his interview. For complete details watch the accompanying video.

Q: Greaves Cotton is your first pick today?

A: This company makes petrol engines, Gensets, agro and construction equipments. Their major presence, however, is into making diesel engines. They are a large supplier to the Piaggio where they mainly cater to the three-wheeler segment like rickshaws.

 If you go by their December Q2 performance, it has been quite good. They have posted a 22% growth YoY on the topline and a 11% growth QoQ on the topline with their turnover placed at about Rs 420 crore with an EPS of close to about 1.8 for the quarter.

If you see their last three years track record, in every quarter they have been improving their performance, barring maybe one-two quarters. So, if I extrapolate this, it is likely to post a turnover or topline of about Rs 1,750 crore for year ending June 2011 with an EPS of over Rs 7.

If I take the present share price at about Rs 92-93, that translates the share ruling at about maybe 13 times because while there are limited peers in this sector, the P/E multiple is also given quite better to this sector. The average industry P/E is seen at about Rs 18-20 while it is ruling at a P/E multiple of Rs 13.

If you see in this kind of a volatile market, this has been ruling quite steady because they have been consistently performing. Because of that the confidence of the institutional investor is quite high. In the next six months, if one can remain invested, they can easily look for a return of 22-25% from this level with a very minimal downside risk.

Q: What about fertiliser stock RCF ?

A: For RCF, the story actually started last year when they recommenced their Trombay unit where they are making 3 lakh tonne of urea per year and 5 lakh tonne of complex fertilizer. That plant had been lying closed for the last five-six years. They have also started getting matching gas supply.

The next kicker is the debottlenecking which is getting completed at their Thal plant near Alibaug, which will increase their production capacity by 20% because right now their urea production is close to about 16 lakh tonne per annum. Once this plant's bottlenecking is completed, it will get increased to 20 lakh tonne per annum. The bottlenecking process is expected to get completed maybe by March 2011.

The best part is for all this increased production, they have matching gas supply from KGD6 which is critical for any fertiliser plant. If we go by tradition, always during budget time, we see the renewed interest coming back into fertiliser stocks, especially stocks like Chambal and RCF which then remain in the limelight. The share has seen a big correction in this last fifteen days.

I think this qualifies as a good buy. This can be a very short-term buy maybe with a view of about two months. I won't be surprised to see the price crossing maybe Rs 90-95. This may not be held necessarily for a very long period but could be a short-term buy call for maybe a gain of about 10-15% or maybe 15-20% in the next couple of months.

Q: There has been a considerable amount of pessimism in the battery space after the Exide numbers disappointed but you like Amara Raja Batteries ?

A: In the case of battery makers, it is more of their margin management. We all know that lead is the main cost for any battery maker. We see lot of volatility in the price of lead. Those companies who have a long-term contract, maybe a six-twelve month contract, where there is no price revision clause. It is very difficult for any battery maker to have a six months kind of lead inventory with them.

But when you talk to the management of Amara Raja Batteries, they have been very prudent in doing that. If you see their track record in the last three-four years, they may have failed in some quarters but that has given them experience. Generally, they have been holding their margin by not entering into very long-term time period contracts.

If I go by the fundamentals, they have a joint venture with Johnson Controls of the US with 26% equal stake by both the foreign promoters and the Indian promoter. If I take a call on the Q3 results, the performance has been quite good. If I extrapolate the same results for FY11, it is likely to post a topline of close to about maybe Rs 1,750 crore. The share is ruling at about maybe a P/E multiple of close to about Rs 10 because it is Rs 2 a share and is a debt free company.

I don't think the concern on the margin pressure going down exists for them. They have been introducing new innovative products for example, the VRLA batteries which they introduced for two-wheelers. They have supply agreements with Honda of Japan as well. Taking all this into consideration, with a P/E multiple of less than Rs 10 debt-free status or topline close to Rs 2000 crore, this seems to be a good consistent performer. My view is it maybe it can be held with a 12 month view. It can give a return of 25-30% on an annualised basis.

Q: Any thoughts on Jain Irrigation ? It used to be a big favourite amongst institutional investors as well but that stock has taken a beating lately?

A: That, I think, is largely due to the disappointing Q3 results. If we see their other operating income of Rs 40 crore, which they have got in the form of the VAT refund pertaining to the earlier period as well, if you knock that out from the bottomline, it has given a big dent.

Generally, this quarter is always seen as a good quarter for the company. Maybe, there could be temporary weakness seen in the stock. I am not, however, taking a negative call or taking a bearish view on the stock on the longer-term. A further correction of Rs 4-5 from hereon, the stock should stabilise and revive again.

Q: Any thoughts on how you would approach Siemens on that Rs 930 offer?

A: I don't think that there is any upside beyond Rs 875 because generally, people go very bullish. This is a voluntary open offer on the lines of ABB. If I go by the 55% float with the promoter and 45% with the public float, that means there will be an acceptance ratio of 2:1 and we are going to see a similar fate that we have seen in the case of ABB. Those who are holding above Rs 875 can either opt to exit from the stock or tender the stock with an acceptance ratio of 50%.

The other stock, Siemens Diagnostic Health which was up by about Rs 250, the performance of that company has been very bad but because there has been a merger of that company, it is also likely to happen with Siemens.

Here also my advice to the shareholders would be to look at selling the stock in the open market now at about Rs 1,650 because once you have the open offer going away then probably the share price of Siemens Diagnostic will fall maybe to Rs 1,500 levels. One should look to exit from Siemens above Rs 875 and from Siemens Diagnostic above Rs 1,650.

Q: Unitech has been hammered on expectation of pledged shares coming into the market etc. How would you approach this one at Rs 48?

A: I am uncomfortable with Unitech. If you see their past, they have tried their level best in restructuring the company inspite, of having huge infusion coming in from their telecom projects as well. Probably, this could be a move on part of the promoter that if they know, if the shares would have come in the market for liquidation, the prices would have been fallen to about Rs 30-35 levels. So, maybe some stopgap arrangement will be made by them.

Q: What did you take away from JP Associates ' numbers though?

A: I don't think that there is anything to complain from JP Associates numbers. The company, however, is facing a huge liquidity crunch. Maybe, going forward, the capacity additions where they have been focusing more on cement could be the reason for the non-performance. Beyond this level, where now the share is ruling close to about Rs 80-85 and is going down, I honestly will be unable to understand the fall from hereon.

Q: Any thoughts on the Nirma buyback price, Rs 262 a share, do you think it will go well with investors?

A: This seems to be a structured delisting move initiated by the promoters that they should be able to look at the shareholding pattern of the company. This is likely because Nirma and Binani Cement , both, seem to be sort of a structured move. I am expecting both to go through, maybe with a slight increase in the price to about Rs 275 for Nirma and against Binani Cement a core price of Rs 82 where it could discover at about Rs 95-98.