SP Tulsian's multibagger picks: Pantaloon, RCF

In an interview to CNBC-TV18, SP Tulsian, sptulsian.com picks Pantaloon and Rashtriya Chemicals and Fertilizers (RCF) as his mulibagger stocks. Both from a technical and fundamental perspective, Pantaloons can move to Rs 200 or so in next 4-6 months, says Tulsian.

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In case of RCF, due to poor response from offer-for-sale (OFS), the stock languished, but now it looks to have bottomed out and for the last couple of days some renewed buying interest has been coming back, says Tulsian. “Fertilizer stocks are expected to do well in the next 2-3 months. On that basis the stock can move to about Rs 50 in next 4-6 months,” he adds. Below is the verbatim transcript of Tulsian's view on CNBC-TV18
On Pantaloon
The management has monetised some of their non-strategic assets. They first exited from the Future Capital which is now Capital First and then entered into an agreement with Aditya Birla Group, now selling their stake in Future Generali, a life insurance and general insurance both. They have sold the non-life insurance to Larsen and Toubro (L&T) and life insurance to Industrial Investment Trust (IITL).
Considering their financial performance on an annualised basis, they have a top-line of close to Rs 15,000 crore which is quite respectable and an EBITDA (Earnings before interest, taxes, depreciation and amortization) of about 11 percent. They have an annual EBITDA of about Rs 1,600 crore plus, but the 8 percent of the top-line goes away into the interest. Rs 1,200 crore out of Rs 1,600 crore EBITDA is taken away by the interest. This has been reflected in their financial performance for 18 months, where top-line was Rs 20,000 crore with EBITDA of Rs 2,250 crore with interest at Rs 1.650 crore.
Going forward, the way they have been trying to reduce their debt, they seem to be more or less on the track. They have presence in 95 cities with 16 million square feet catering to Rs 30 crore customers and very low equity base of Rs 46 crore. When Pantaloon’s trading pattern corrects, it corrects swiftly. From Rs 250-240 it falls to Rs 140-150 and because beyond a certain limit the stock cannot fall further with the market cap now at Rs 3,000-3,200 crore, so renewed buying or technical forces make the stock go up again to the level of Rs 200 plus or crossing beyond Rs 200 or so.
The shareholding pattern, promoter holding of 44 percent, institutional investors of 40 percent, everything is in place provided the management keeps on monetising their non-strategic assets and continue reducing their debt. Huge shorts seen pending in the system and even the stock is under owned by the prudent investors as well. Maybe at a lower level and this kind of trend, the stock is giving an indication that it has bottomed out. Taking a technical and fundamental view the stock can move to Rs 200 or so in next 4-6 months.
On RCF
The OFS has been the culprit. The government reduced their stake from 92.5 percent to 80 percent. Firstly, government in next one month or so may come out with the investment policy in case of urea because that is overdue for last six years. For 6-7 years we have not seen any new capacity in urea space. So, government may come out with the investment policy in that respect.
Secondly, ahead of the monsoon, we always see the fertilizer stocks moving up and if you compare the business of RCF with that of Chambal Fertilizers or any other company, RCF always has an edge. The company's Thal plant at Alibag has a capacity of 6,000 tonne per day of urea, apart from that they have their complex fertilizer at Chembur which is not doing well.
The surplus land with the company in eastern suburb of Mumbai is not going to get monetised, but they have Rs 150 crore as transfer of development rights (TDR) for the eastern freeway expansion. Some of the money will also be booked by the company in the next financial year. Apart from that, they have the new capex lined up, one joint venture in Ghana, the gas-based urea plant and are also planning to have a joint venture with Coal India for urea production. Taking all this into account, the stock seems to have bottomed out.
The stock used to rule above Rs 50 prior to this OFS, but because of the poor response to the OFS, the stock is languishing. For the last couple of days, some renewed buying interest has been coming back, because the fertilizer stocks are expected to do well in the next 2-3 months. On that basis the stock can move to about Rs 50 or so in next 4-6 months.