Check out: Tulsian suggests a liquor stock at start of 2012

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Check out: Tulsian suggests a liquor stock at start of 2012

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com gives his multibagger ideas for the start of 2012.

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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 United Spirits BSE | NSE 29/05/12 Are Mutual Funds betting on United Spirits? Other Stocks in this news Wockhardt |

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com gives his multibagger ideas for the start of 2012. He speaks extensively on United Spirits and Wockhardt.

Below is a verbatim transcript of his interview. Watch the accompanying video for more.

Q: You have picked a liquor company at the start of 2012. Why you would buy United Spirits today?

A: The idea behind choosing this stock is purely fundamentals which are being missed. Maybe the bearish perception is getting formed on the UB group because of Kingfisher Airlines. If you take a call on United Spirits, this has become the largest spirit maker in the world. Three years back they were number three and today they are number one.

Last year they produced 114 million cases against 106 million cases produced by Diageo who are second in the world in the same field. If you see, they practically have number one position if you talk of whisky, rum, brandy etc. Their product ranges from Rs 250 to Rs 70 lakh but their financial performance of the company for FY11 saw it post an EPS close to about Rs 30 on a topline of close to about Rs 7,000 crore. Now, for the first half, they have already clocked in a turnover of close to Rs 3,800 crore with an EPS of close to about Rs 22.

In that first half, there is a small exceptional game kind of an element of Rs 25 crore which you knockoff that gives an EPS of close to about Rs 20. Going forward, for FY12 the company should be able to post an EPS of close to about Rs 40-41 or maybe Rs 42 because in the second half generally the company always remains good. So taking that into account, the share is available at a PE multiple of close to about 11-12 and the kind of growth the company has been consistently posting from hereon is likely to see the EPS move to about Rs 46 to Rs 48 for FY13 which will translate the share to rule at close to a PE multiple of about 10.

That has been the history. Never has beverage stocks ruled at such low PE multiples, especially, with the UB Group which is now number one in the world. The stock had its 52 week high of Rs 1,500 and its 52 week low is now at Rs 490. This has very limited downside. In the last one month, the stock has corrected more than Rs 150 to Rs 200 maybe on a technical parameters. The stock may continue to look weak. Maybe the technical analyst can give a sell call that probably the continuous hammering of the stock or formation of the new low everyday is making the stock more fit for a short candidate rather than buying it.

Being a fundamental analyst, in my view, this stock looks quite good. If somebody can keep a view of six months because you see the recovery also coming very fast, the FII holding is close to 52% and promoters have 28-29%. So whenever you see the upside coming back that also comes very swiftly and I am expecting the share to move to Rs 750 in next six months or so.

Q: Why have you picked Wockhardt today?

A: Wockhardt is a contrarian call, an unusual victim of the recent developments which are happening at the Bombay High Court. The FCCB dispute which has been going on for the last six months got resolved last month but suddenly a new dispute cropped up which has stalled the deal of the company to sell its nutrition business to Danone for USD 355 million. This transaction happened in the first week of August 2011, at USD 355 million and of this USD 355 million, half the amount will come in the Indian company and half will go into the overseas company but if you take the exchange gain the company stands to gain by 15%.

If this USD 355 million was converted in August 2011 it was working out to Rs 1,600 crore. Now it is working out to Rs 1,850 crore and considering the debt in the books of the company which is Rs 3,200-3,300 crore because of the efforts of the promoters they have sold their personal assets. They have sold one or two animal healthcare divisions and have made all efforts to bring the company back on track and this is the sixth-seventh largest pharma company.

I am quite hopeful that the hearing which is now fixed on January 13 at the Bombay High Court is likely to get resolved. I don't think the small litigation can stall this deal of Rs 1,850 crore. I am quite hopeful that if not on January 13 maybe one-two adjournments can happen in the proceedings and then the matter will get resolved. So post that, the stock has the potential. We have been witnessing profit booking in the stock because it moved to Rs 450 maybe couple of months back and since then it has seen profit booking.

I feel that stock has bottomed out. If you see the financial performance as well, it has continuously improved. There are a lot many exceptional items, forex losses so there is no point in taking a call on the bottomline but the topline for FY13 can be close to about USD 1 billion at least Rs 4,600 to 5,000 crore which will result in a respectable bottomline as well to Rs 400 or maybe Rs 450 crore.

So, this gives a good idea for someone because people generally have been seen entering the stock when it starts moving up maybe many of them have bought the stock at Rs 400 more than Rs 400 but now this is the ideal time. I am not saying that it cannot fall from hereon, it can, it can fall to a low of Rs 250 but I don't think that should be a cause of concern but if somebody can keep a view of about six months they should be able to hopefully see a price of Rs 350. So, a very stable and sound investment at current levels.

Disclosure: I have personal holding in Wockhardt