ISMT can give 25% return: SP Tulsian

Tulsian told CNBC-TV18, "ISMT is the largest seamless tube maker in the country. They recently completed their expansion of the seamless tube making, which made the capacity to move to 4,65,000 tones per annum. Apart from that they have the steel bars making capacity also of 3,50,000 tones, which will be used largely for the captive consumption. So you have the matching raw material requirement capacity also and now the company is setting up a new power generation plant of 40 MW at Baramati again which will be catering to their own domestic, their captive requirement and in fact power is the other cost which attracts the maximum cost to the company.”

He further added, “If you see the expanded capacity, I think the result of the expanded capacity will get reflected into FY13 because since they have recently completed the expansion, at present on the old capacity if I take the 465000 tones and if I take the production achieved by the company in FY11, it works out to about less than 40% of the capacity, while the turnover in that year was about Rs 2500 crore.”

“If you see the quarter one again they have the turnover of close to about Rs 760-780 crore. So I am expecting that probably the turnover for FY13 will be about Rs 4000 crore plus but even if I take the present financial performance, the face value of the share is Rs 5, the company should be able to post an EPS of close to about Rs 6 for FY12. Apart from that the cash EPS has been very high for the company, which is almost 150% more than the operating EPS and the recent development which has happened day before that Maharashtra Seamless which is again a competitor of the company they have acquired 13.5 lakh shares from the open market at Rs 31. So that constitutes about 1% of the present issued share capital of the company.”

“I don’t know whether there is any kind of alliances or I won't call it as a stake sale because the present promoters are already holding more than 50% but I see this as a big corporate development. And if that happens by any chance either Maharashtra Seamless takes it over; this is again a very premature wild guess that if they have any kind of alliances, I think that will be a value accretion for the stock. If that news unfolds share can move to Rs 40 plus but otherwise also on a pure operating performance if you take a long term view again this is a steady stock exactly like Excel industries which is capable to give a return of 25% annually over next 2-3 years."

Disclosure: I have no personal holding in the above stock.