Why does Tulsian see 50% gains in Garden Silk?

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Why does Tulsian see 50% gains in Garden Silk?

SP Tulsian, sptulsian.com is bullish on Garden Silk, Indoco Remedies and Binani Industries.

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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 Garden Silk Mil BSE | NSE 29/05/12 Are Mutual Funds betting on Garden Silk Mil? Other Stocks in this news Indoco Remedies | Binani Industries | Binani Cement | Chambal Fertilisers and Chemicals | Rashtriya Chemicals and Fertilisers | Gujarat Narmada Valley Fertilizers Company | Nagarjuna Fertilisers and Chemicals | Madras Fertilizers | Cairn India | Shilpi Cable Technologies | Unitech | Punjab Alkalies and Chemicals |

SP Tulsian, sptulsian.com is bullish on Garden Silk , Indoco Remedies and Binani Industries .

Also read: How do you play Sesa Goa, Suzlon, Unitech now?

Below is a verbatim transcript of his exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.

Q: Garden Silk, what is the story there?

A: Garden Silk has a very strong brand equity. They have strong presence with 300 retail outlets, of which 18 outlets are company owned.

If you see the performance in the current year, all the textile stocks have been performing very well, especially the companies who have a strong brand. The company is holding brand Garden Vareli. If I go by the financial performance for first nine months, they have already achieved the turnover what they had done in FY10, to the extent of about more than Rs 2,500 crore. The earnings per share (EPS) has been at about Rs 15 for nine months, profit after tax (PAT) at Rs 55 crore.

Cash EPS for nine months has been at about Rs 31, while the EPS was at Rs 15. So, going by the same financial performance, the company should be able to post an EPS of close to about Rs 22 for FY11 with cash EPS of Rs 44 with top-line of more than Rs 3,600 crore.

If we look at FY12 performance, the synthetic textile makers, the man-made fiber makers have the advantage over the cotton textile makers. They should be able to post a top-line of close to about Rs 4,300-4,400 crore. I won't be surprised to see the EPS coming at about Rs 27-28 for FY12.

So, if you go by the same parameters, if you put a P/E multiple, it is available at a P/E multiple of close to 4 on the forward earnings and maybe 4.5-5 times on the historic earnings with cash P/E multiple of less than 2 for FY12 and 2.5 for FY11. So, I think the downside is very minimal. But if one can hold this stock for six-eight months time, one can see a price of Rs 160.

Q: Indoco Remedies, what kind of price targets you would have there?

A: Indoco Remedies is into the Active Pharmaceutical Ingredient (API) and formulations. They have six manufacturing plants. They have brand product portfolio of 135 products, of which 14 products are in top three brands category. They have presence in 35 countries, of which many regulated markets are also included.

If you go by the financial performance for the first nine months, the company has posted an earnings per share (EPS) of Rs 33 on a top-line of about close Rs 370 crore. And this performance was achieved by the company in whole of FY10. So, already the company is on a path of showing a growth of about 35-40% in FY11. They should be able to post an EPS of close to about Rs 45 per share for FY11, which could rise to about Rs 52-54 for FY12.

The company has a very small debt of about Rs 40-45 crore which is largely used by the company for working capital. So, if I take an analysis, it can be called as a debt free company. It is available at a PE multiple of close to about 10 or 11 on the historic earning. So, amongst the midcap pharma, this looks quite an interesting stock. I am expecting a price of may be about Rs 600 in next eight-ten months time.

Q: What about Binani Industries?

A: There is an interesting accumulation going on in this stock. It was expected that post delisting move of Binani Cement , Binani Industries is bound to see these kind of movement. They have successfully acquired now 95% stake of Binani Cement and Binani Cement is getting delisted. Yesterday, the stock Binani Industries has been moved by about Rs 30, infact there has been strong accumulation going on.

If you see the rationale behind delisting of Binani Cement, it is to eventually give the control or hive off or sell the cement division to the ultimate buyer. This company has a present capacity of nine million tonne, which is going to get increased to about 15 million tonne in next 12 months time. They have presence in India, China, Mauritius. There is a lot of appetite for the larger cement play. Suppose if a company has a capacity of ten million tonne, and that too with the newly created capacity, all those companies can easily fetch a price of USD 160 per tonne. And this company falls in that category. As I said that eventually they will be having 50 million tonne.

If I go by the present cement companies in India, there are only three companies having capacity of ten million tonne i.e. Shree Cement, India Cement and Binani Industries. So, I am taking a call that ultimately the promoters are going to sell this company. The cement division can fetch them about Rs 8,000-8,500 crore.

If I go by the present marketcap of the company, it is less than maybe about Rs 650 crore. Even if I add that debt of about Rs 2,400-2,500 crore in the books of the company, total EV of the company is at about Rs 3,200 to 3,500 crore. So, I am expecting a big corporate move likely to happen in this company, which can take the share price to about Rs 350.

If you see the track record of the promoters, they have been very conservative. If they have initiated a move, first of delisting the Binani Cement at a higher price, there is bound to be some game-plan going on in the minds of the promoter. So, I am quite optimistic purely on the expected sale of the cement division and that can result share moving to about Rs 350 maybe in next eight-ten months time.