Multibaggers of the day: Tulsian picks Orchid Chem, NCC

SP Tulsian of sptulsian.com picked pharmaceutical company Orchid Chemicals and construction player Nagarjuna Construction as his multibagger stocks for the day.

He expects Orchid Chemicals to fetch 50% returns in the next twelve months. "I am holding quite a positive view on the stock with a view of about 2-3 years and it seems to have bottomed out. One can expect the share to move to about Rs 180 in next twelve months." NCC's very low equity base of Rs 50-51 crore and lower promoters stake of 19% can attract many investors. Tulsian sees good potential in the stock given its order book Rs 20,000-Rs 22,000 crore. "A price target of Rs 50 can very well be expected in next twelve months." Below is the edited transcript of Tulsian’s interview with CNBC-TV18. Also watch the accompanying video. Q: Orchid Chemicals went through a really rough patch after its earnings but do you think it now warrants a buy? A: Infact one has to look for these kind of stocks to get settled because we have been hearing negatives noises on the stock from the last six months or so. If you recall same thing happened with Sintex even when it bottomed out at Rs 50, people were continuously taking negative call, but the stock moved to Rs 58. On the same theme I recommended Sintex. I am going by the same logic for Orchid Chemicals also. You cannot write-off this company which is amongst top-15 pharmaceutical companies in the country having presence in 70 countries. It is having good active pharmaceutical ingredient (API) and formulations making units and they have a very strong presence in the Cephalosporin market. If you go by the financials of the company for FY12 with a topline of 1,900 crore, I don’t think that there are any concerns on the operating profit level. There is no point in taking the PAT of the company for FY12 because there were about Rs 80 crore write-back of the tax and other exceptional items. So I am focusing purely on the operating profits, which has been very much in line. But the interest cost to the extent of about 180 crore has eaten away the PAT or spoiled the party. The EPS of 14-15 posted by the company for FY12 may not truly reflect the working of the company. As I said, there was income tax refund of Rs 80 crore, exceptional losses, forex gain and losses, so it is better to focus on operations. Taking that into account, even considering FCCB liability and all kinds of debts prevailing in the books of the company, in my view stock seems to have bottomed out. This stock may not for the traders to take a daily call or play with one or two weeks horizon, but it seems to be a perfect fit for the investors. This reminds me of the Wockhardt, four years back it used to rule at Rs 75 and today it is ruling at Rs 880.  I am not putting this company in the same category but, I am holding quite a positive view on the stock with a view of about 2-3 years and seems to have bottomed out. Considering all these things, one can expect the share to give a 50% return and can move to about Rs 180 in next twelve months or so. Q: Nagarjuna Constructinos is the other beaten down name that you like. What is your take? A: It is a very interesting story, we need to bifurcate this company in two parts, one is their core business of construction and civil contracting work and the other is NCC Infrastructure Holdings and NCC Urban Infrastructure. These are their two subsidiaries which are holding the assets of BOT and BOOT projects. The total debt of the company on a consolidated basis is at about Rs 5,000 crore. Disclosures: I have no holdings or interests in both the stocks.
_PAGEBREAK_ If I bifurcate this Rs 5,000 crore, Rs 3,000 crore has been availed by these two subsidiaries which are holding build operate and transfer (BOT) and build-own-operate-transfer (BOOT) projects as well as the real estate development. If you take the assets valuation of these two subsidiaries, it is amply backed by the rich assets maybe in the form of the land, real estate development or BOT projects which the company has been holding. The promoters will be forced to monetize the assets of these two subsidiaries gradually, it may take about 12-18 months time and the company might pay off the debt of Rs 3,000 crore. If they do that then on a standalone basis the company will be left with the debt of Rs 2,000 crore. As far as the consolidated operations are concerned, BOT and real estate developments are not contributing much to the topline. Major income is coming from their core operations of civil construction and engineering work. The FY12 income on a consolidated basis was Rs 6,600 crore with operating profit of close to about Rs 650-660 crore. There are no concerns, but on a consolidated basis again the interest liability has moved from Rs 270 crore to Rs 570 crore, a straight increase of about Rs 300 crore for that FY12 on a consolidated basis. That has resulted the PAT to fall by about Rs 150 crore. So, the company promoters will be forced to take this call and in fact they have all started doing that. They have started exiting from the BOT projects. We have seen this happening in case of IVRCL also. IVRCL and NCC seem to be replica in terms of business model, assets owned and promoters holding. A very low equity base of Rs 50-51 crore and lower promoters stake of 19% can attract many investors. I won’t be ruling out a hostile takeover kind of bid. But purely on fundamentals, I think stock has a good potential considering their order book Rs 20,000-Rs 22,000 crore. The stock looks very good and price target of Rs 50 can very well be expected in next twelve months or so.