Mangalore Chemicals can test Rs 55-60: SP Tulsian

Tulsian told CNBC-TV18, "Mangalore Chemicals and Fertilisers has been in the limelight over news that UB group is looking to divest their stake. There is talk that probably MRPL has shown interest in acquiring this company."

He further added, "If you go by the business model of the company, they produce 3.80 lakh tones of urea and about 2.60 lakh tones of DAP with the other related anti-ancillary product. The financial performance of the company has been quite good. EPS for FY12 can be expected at about Rs 7 because they have already posted an EPS of close to about Rs 4.7 for nine months ending December 2011, and taking that into account, it is ruling at a PE multiple of about six times, while the other fertilizer companies have been trading at a PE multiple of 9-10 times."

"The debt position also is not very bad in the company. They have a debt of about Rs 500 crore, of which Rs 250-300 crore has gone for financing working capital, while Rs 200-250 crore has been used for financing the term-loan for fixed assets of the company."

"If you see, the company has huge surplus land and there is talk that it could be about 200 acres. The location of the plant is very good; it is connected by sea, rail and road. Demand for fertilizer plant has been witnessing spurt by all existing manufacturers. Even they have evinced interest in the company."

"Taking all this into consideration, even from a fundamental point of view, even if this deal does not happen, it will not fall below Rs 40 because it has a very limited downside. If this deal does happen, I say it has 75-80% chances of the deal happening in the next couple of months or so, the share can move to about Rs 55-60."

"I am expecting the deal to happen at about Rs 75 per share, considering the market cap of close to about Rs 500 crore; it should fetch a premium of at least 80% from the current valuations, may be close to about Rs 900-1000 crore. Taking all this into consideration, I think the stock looks quite good. One can expect a price of Rs 55-60 in the next maybe four-six months."

Disclosure: I have no holding or interest in the above stock.