Tulsian's multibaggers: Century Textiles & Nesco

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Tulsian's multibaggers: Century Textiles & Nesco

SP Tulsian of sptulsian.com tells CNBC-TV18 that Century Textiles and Nesco are two companies that investors should look to buy into with a three-five year perspective.

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SP Tulsian of sptulsian.com advises investors to buy into Century Textiles and Nesco. "Century can give 20% returns over three-five years, and Nesco will move to Rs 1000 on six-eight months," he said in an exclusive interview to CNBC-TV18.

Century Textiles

This is a multi divisional company - they are engaged in cement, paper, textile, retail and chemical. In fact, real estate was a new addition about 18 months back. They have shifted their Mumbai textile mill near Surat and they are developing that property which eventually will give them anywhere between 40-60 lakh square feet over the next five years. So consider total 40 acres of land after knocking off 10 acres of land which is in dispute with Wadia's over the lease and change of user. The real estate division can really fetch them very good recurring income on a continuous basis once they complete that over next three to four years. The kind of amount they will be requiring on development of that work is not more than Rs 3000 crore over next four years which the company is generating every year, so there won't be much pressure.

Apart from that, I am relying more on the cement division. If you see the first half, the company has not really performed very well at all. In fact, the payment of three installments of the advance tax has been the dampener. The company has virtually paid nil advance tax for the first three installments and that has really disappointed the market; stock fell to about Rs 225. But considering the present cement working of all the companies, and in fact some of the results have already started coming in for Q3, I am holding quite a positive view on the stock. Since this is the most inefficient performance having posted by the company in last two quarters, they have the chances of improving those performances which can vastly re-rate the stock. I am not relying on the first two quarters results but if you take full year's working for FY11, it's a USD 1 billion topline company, close to about Rs 5000 crore.

As I said FY12 has been washed out first two quarters, but FY13 can give them a topline of close to about Rs 6000 crore. One can expect an EPS of anywhere between Rs 36-40. If you see the present market cap of Rs 2500 crore, and even if you add the net debt of about Rs 2500 crore, the enterprise value works out to about Rs 5000 crore. While the cement division alone of nine million tonne can get valued close to about Rs 6000 crore, real estate can get valued to close to about that Rs 6000 crore. In fact, there was some talk that company or the management is looking to sell their 2 lakh tonne paper plant which they have in Uttarakhand and that can get sold for anywhere between Rs 1600-2000 crore. Once that happens, the entire amount will be used to de-leverage the balance sheet. It can virtually make it a debt free company.

So taking all this into consideration, I think this is the most ideal stock for a fundamental investor with a view of three to five years. I am not saying that in the short run the stock is not capable to give a return, maybe in six months it can move to Rs 350, but if somebody can keep a view of three to five years, I think this stock is capable to give a 20% annualized return over this period of time.

Nesco

Nesco is a pure real estate company. They have 65 acres of freehold land at Goregaon, which is in Goregaon East adjacent to the western express highway. They have this Bombay Exhibition and Convention Center which is the largest centers in the private sector in India. If you see the revenue breakup, 50% of the topline comes as a bottomline because largely the company is having the rental income. This Bombay Exhibition and Convention Center gives huge income in the second half because all these exhibition thing starts after monsoon gets over, from the middle of October and it lasts up to March. This kind of rental income has been very good for the company. In fact for FY11, they posted an EPS of close to about Rs 50.

But maybe three-four months back, the company completed IT building number three which is of about 8 lakh square feet and have started renting it out. In fact, 60-70% of that building has already been rented out of 8 lakh square feet and the balance is likely to happen by March. So FY13 will be seeing additional rent flowing in from this. The total developed area in the portfolio of the company now is at about 16 lakh square feet. The company has now taken up the development of IT building four also. Plans with an international architect is under consideration or under development and I hope to see that construction work getting started maybe in next couple of months and should be able to get completed in next 18 months or so.

It's a debt free company; the company has about Rs 170-180 crore as investments in liquid funds which can easily get utilized for completion of this IT building four. So on enterprise value basis, it has enterprise value of close to about Rs 700 crore only against a market cap of Rs 900-930 crore. On a valuation basis, I think this land along with the developed building they have can be taken at close to about Rs 4000 crore. The shareholding pattern is also quite interesting. Promoters holding 63-64% and their associates or friends or HNI's are holding close to about 16-18%. So I think this is a very interesting idea.

Continuous rental flow income will give them probably an EPS of close to about Rs 65-70 for FY13 which will keep on increasing year by year, so again a very interesting stock to keep in the portfolio. One can expect a price of about Rs 1000 in next six-eight months time.

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