Feb 27, 2012, 09.47 AM | Source: CNBC-TV18
Kennametal India has target of Rs 1150, says SP Tulsian, sptulsian.com.
SP Tulsian (more)
CEO, sptulsian.com | Capital Expertise: Equity - Fundamental ,IPO
Tulsian told CNBC-TV18, "After the expected delisting of Alfa Laval, which likely to happen anywhere between Rs 3600-3800, we saw many potential delisting candidates move up on Friday like Oracle Finance, BOC India, Blue Dart and Kennametal. This is in fact the theme of picking Kennametal India also coupled with the fundamentals of the company. If you see, this company’s making hard metals and industrial machinery for aerospace, defence, energy and earthworks, and this company has been consistently posting very good or robust numbers. For June 2011, the company posted an EPS of close to Rs 40. If you go by the first half performance, on a topline of about Rs 280 crore, the EPS has been placed at about Rs 20. But since the second half is always better, one can safely expect that FY12 should give an EPS of close to about Rs 42-43.”
He further added, “The interesting part here is the shareholding pattern. Overseas promoters hold over 88% in the company, so this is seen as a potential delisting candidate. But the only catch is that of the 12% public float, about 3.5% is held by a very rich HNI group who at present is reluctant to tender their shares. So if they don’t participate in the reverse book building process, whenever that happens, probably delisting may not go through and that fear has kept the share price quite low.”
“But as I said, Friday saw a run up in all potential delisting stocks, and this stock also moved up. My gut feeling is that the delisting is likely to happen and there is no point for any, even HNI investors, to remain invested if the multinational promoter is looking to exit. If you see, the delisting of Atlas Copco is expected at a PE multiple of Rs 40, Alfa Laval at a PE multiple of Rs 48-50, so because of these high valuations given in the reverse book building process, the hopes have all got hugely built up on these stocks also.”
“As I said, this company will be having an EPS of Rs 42-43, so one can safely assume that by the time we see the preparation or the plot being built up for delisting process to get initiated, the share can move to about Rs 1150-1200 in the next six months. On the upside, you have the potential for stocks to move up 25%, so I am giving a target of Rs 1150 which can be expected for the stock in the next six months or so."