Multibaggers: SP Tulsian picks Kennametal India, Repco Home

SP Tulsian of sptulsian.com is betting on Kennametal India and Repco Home Finance. He sees both these stocks having the potential to fetch better returns going ahead.

Also read: Nifty to be rangebound; short sell below 5800 says Sukhani Below is a verbatim transcript of the interview: On Kennametal India The floor price of Kennametal India offer-for-sale (OFS) was set by the promoters at Rs 435, the OFS got a response at Rs 476 per share, it is a wide difference and after that too OFS subscribed 200 percent i.e. 2 times. They make metal working tools. The financial performance of the company for FY12 has been good for June ending where they have reported an earnings per share (EPS) of Rs 31 and declared dividend of 250 percent. Ahead of this delisting move or maybe the stake reduction by some of these multinational companies (MNCs), I do not find it very comforting move by them. All these companies, for example Kennametal India have reported an EPS of sub-Rs 6 for first six months of the current year i.e. FY13. I do not see any reason that such a contraction in the margin has happened. We have been seeing a similar kind of performance from an EPS of about maybe Rs 15-20 for AstraZeneca going into the negative EPS of Rs 25-30. So, I do not understand the reason for this kind of drop in the profitability whether anything to do ahead of the delisting norms. Now, if you set the lower floor price, if you post very poor performance, obviously the response will not be very good. That has not been the case here. In my view, the core business of the company remains quite strong. If we overlook this one FY13 working for ending June 2013, which should be able to post an EPS of Rs 16-17, for FY14 the company will be bouncing back and come out with an EPS of closer to Rs 30. Whenever you see these kind of stocks getting corrected that makes a good entry point. That has happened in Kennametal India also. As I said that the core business is very much in the place, expected EPS is more than Rs 30 for FY14. So, this gives a very good entry point. Disclosures: SP Tulsian has investments in Kennametal India. _PAGEBREAK_ Even yesterday, in spite of the floor price having set at Rs 435, you have not seen the stock falling below maybe Rs 460-465 for a while and closed at Rs 485. So, this is a good entry point. Now the float of about 13-14 percent which has been diluted by the promoters has largely gone to the institutional investors who are very long-term investors in nature. So, there is not much increase in the public float and any kind of rerating or improvement in the financials will vastly rerate the stock. So this makes a very good stock in my view and one can keep a target of about Rs 600 in next six months or so. On Repco Home Finance If I go by the performance of the company, they have EPS of close to Rs 15 for FY13. Yes, from FY10 to FY13, there has been contraction in their mean, which used to be more than 5 percent to now at sub-4 percent. Going by the EPS of closer to Rs 15 for FY13 -- I expect that probably that may increase to about 17-18 for the next year --  the stock looks quite good because you cannot compare this stock with stocks like Dewan Housing Finance Corporation, which is ruling at a P/E multiple of Rs 7-8. However, traditionally, all other stocks are ruling in the P/E multiple of Rs 12 to Rs 14-15. Here, the shares are issued at a P/E multiple of Rs 11. So, I will be comfortable because as such I am holding my positive view on the home finance stocks. This company has a strong presence in the southern India. That market is growing quite well for the home finance. So, at least I will be comfortable subscribing the issue at the current price band.