Multibagger ideas: SP Tulsian's 2 picks for good returns

Houseviews: 2 stocks to buy, 2 to avoid

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy.

Q: Why have you picked KCP?

A: The company is into multiple businesses. The main business is of cement. They have two cement plants in Andhra Pradesh with an aggregate capacity of close to about two million tonne per annum. Apart from that, they have power business. They are into all three verticals, wind turbine, wind thermal and solar. They also have presence in engineering and biotech. But cement continues to remain their main focus.

If you go by their financial performance for FY12, the company posted an earning per share (EPS) of close to about Rs 8, on a consolidated basis, on a top-line of over 1,000 crore. But, for FY13, considering their first quarter results, I am expecting top-line to be close to about Rs 1,200 crore with profit after tax (PAT) of close to about Rs 180 crore. That will give an EPS of close to about Rs 14 on the equity base of about 13 crore.

If you see the present price, which is now at about Rs 42-43, the share is ruling at a PE multiple of three times. If I go by their net worth, marketcap, total enterprise value including the debt Rs 200 crore, the cement division is valued at an enterprise value of less than USD 40 per metric tonne. If you take the gross value, it works out at about USD 48 to USD 50 per tonne, which includes all three other businesses also. So, if you knock-off those three business valuations, it rules at about USD 40 per tonne. That seems to be quite low. I find this stock to be quite undervalued.

Apart from that, the board has already paid first interim dividend of 25 percent, consideration of second interim dividend is placed on the agenda of the board meeting on  October 25. So, I am expecting that probably the dividend payout also for the whole of the year could be in excess of more than 100 percent, though the share has a face value of Rs 1. So, taking all this into account I think the stock looks quite undervalued at the current price and can move to about Rs 60 in next six months or so.

Q: What about Prestige Estates?

A: If you see Bangalore market, it has grown by 40% in Q1 from April to June. In fact the entire Southern area is moving up quite fast in the real estate market, but Bangalore has been taking the lead. NCR and Mumbai both are lagging behind.

Prestige Estates is a leading developer known for its quality. It has presence in the entire southern India. They have their major presence in Bangalore, about 75% of their projects exist in Bangalore, but they have presence Chennai, Hyderabad, Kochi and in many other cities of southern India. They have 33 ongoing projects with area of 36 million. That means each project is of an area of one million square feet which is quite high. They have 33 projects under development with area of 16 million sq ft that means at under development stage they have projects of area of 0.5 lakh sq feet on an average. That is also considered very high.

Considering the quality name, they always enjoy better realisation, maybe by Rs 200-500 per sq ft. In the recent past, in the last couple of months, many of the projects have been launched. Yesterday, we had news of Puravankara Projects launching the premium residential projects. A week before, we saw Godrej Properties launching. Because of the booming Bangalore market, I think this company will continue will remain in an advantageous position. In Bangalore there are two companies— Brigade Enterprise and Prestige Estates— who are known for the quality.

The share seems to have good upside potential from here on can move to Rs 175 in next six months also.