SP Tulsian bets on GIC Housing, NRB Bearings

SP Tulsian of sptulsian.com recommends investors to buy into GIC Housing and NRB Bearings with a 12 month time frame.

For GIC Housing, he expects the stock to reach Rs 110 per share within a year. Along with a 5% dividend, Tulsian says this is a good investment. Meanwhile, he says that NRB Bearings will reach Rs 16 in the same time period. Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. GIC Housing GIC Housing has posted good results. As the name indicates, that they are into housing finance; they are financing largely to individuals those who are going for residential flats as well as developers who are specially only into the development of residential premises. So they don’t have a wide bouquet. Generally housing finance companies catering to this segment have a very low NPA, low bad debts or very low stress assets. They also have a consistent performance, and that is seen reflected into the Q1 results. They posted a top line of close to about Rs 130 crore with EPS of Rs 4.1 for the quarter. If you recall in FY12, Q2 was bad for the company, and due to that their EPS was close to about Rs 11 for FY12. But I am expecting the company to post an EPS of close to about Rs 15-16 for FY13. Taking that into account, the share is ruling at a PE multiple of close to about Rs 6 on the historic. Its present book value is close to about Rs 90 and if I take a forward book value it will be about Rs 105. Dividend has been consistently paid by the company to the extent of about 45%. Despite lower profitability in FY12, the same dividend of 45% was maintained by the company. But expecting that the dividend is likely to get raised in FY13 to about 50%, that gives an effective yield of close to about 5-5.5%. This company is promoted by five insurance companies who have collectively holding about 43-44%. If you see all the housing finance stocks are ruling quite well, but this is the only company which is ruling at such a low PE multiple. So probably if somebody can keep a view for a period of about 12 months, expect a price of Rs 110 and as I said even dividend yield of 5% plus for the stock looks quite effective. NRB Bearings NRB Bearings is a very interesting company. They are an anti-friction bearings solution provider, catering largely to the auto segment where they have their products supplied. Apart from that they are also catering to the farm equipments, tractors. They have seven plants in India, one plant in Thailand and the performance of the company has been quite good. They have not yet declared their Q1 results, but if I just take their FY12 numbers, the top line has been Rs 500 crore plus with EPS of Rs 5 plus. The shareholding pattern is that 72% is held by the promoters and 17% by three investors - one FII, HDFC and ICICI. So this takes away 90% of the total shareholding of the company between promoters and these three large investors. Generally all bearing companies are ruling at a very hefty valuations of anywhere between Rs 16-20 PE. However, this stock is ruling at a PE multiple of 8-9. Seeing the consistent growth, seeing the demand of the bearings in the replacement market coupled with the OEM also, I think the stock looks quite interesting at the current price and price can be expected at about Rs 16 next 12 months or so. Disclosure - No holding or interest in both stocks. Read on for Tulsian's view on individual stocks.. _PAGEBREAK_ Q: What are you expecting this quarter from Reliance? A: Firstly we are expecting that they should post better numbers than what they had posted for Q4. Secondly, they had a partial shutdown for about three weeks in Q4, so the Gross Refining Margin (GRM) has to get improved. I am expecting about USD 7.9 for the quarter. If you see the upstream, definitely there is a drop of production to the extent of about 11-12%, so I am expecting an average production of the gas at about 32.5 mmscmd against 36.5 mmscmd having posted by them for Q4 of FY12. Apart from that, petrochem is likely to contribute slightly better than what they have. There is a lot of noise that in the month of June the Singapore benchmark had really fallen, but if you really see for last couple of quarters they have not been reporting GRM in sync with the Singapore benchmark. Earlier they used to enjoy a premium of about USD 2 per barrel of GRM, but that has not been happening either. In fact, there is lot of disconnect between that and so I am taking a slightly higher GRM of about USD 7.9 for the quarter. But if for some reason if the PAT reported by the company is less than what they have posted for Q4, there will be a big downgrade of the stock. Q: What do you expect to hear from the cabinet on the SAIL divestment and how do you see the stock moving in the near term if it is given a nod today? A: Firstly I am not convinced at all with the SAIL divestment at this stage. If you take the market cap of less than Rs 45,000 crore and if you add the net debt in the books of the company of around Rs 16-17000 crore, the entire company enterprise value is at Rs 60,000 crore. If you take the iron ore reserves alone, they have equal or more iron ore reserves than what NMDC has. So I don’t understand the wisdom of divesting SAIL at this stage. Even suppose you are able to do 10% plus of what has been envisaged by the government, we will get mobilized by may be at about Rs 4,000 crore. Sometimes you do not know whether the breakup of that 10% will be 5% fresh issue, 5% offer for sale, so I don’t think that this is appropriate. For two companies I have been keeping my reservation, SAIL and BHEL, because divesting at the current valuations doesn’t hold any logic. But suppose for some reason if it goes through, I think that there should be strong appetite. It may not be from the pure financial investors, but from those who have vision on the industry and the stock will really going to lap up. I will be seeing the good institutional or HNI investors demand if the divestment of about 10% goes through. Q: The other one is Tata Communications and that big land parcel. Do you expect any headway to be made and some kind of resolution in terms of selling it, monetizing it, splitting the gains? A: This has to happen because this has been hanging for last 10 years. If you recall the divestment has happened or privatization has happened in 2002. See the pain of the share holders, those who have tendered their shares in the open offer of 20% in 2002, and now they will be receiving the shares of this hived off real estate company in which there will be 770 acres at four locations. So first my point is that we should not look for monetization. One should really question the justification for not taking up this matter for last 10 years. What has been the fault of those minority shareholders those who have tendered 10 years back. Second point is that if they start doing that, the valuation is seen anywhere between Rs 7500 crore to Rs 10,000 crore. Depending on the valuations, it translates into value per share of about Rs 130-140. But I don’t think that this will really be a big kicker for the stocks to move beyond Rs 260-265 because large part of that valuation which I am referring to is of the real estate, about Rs 125-130 per share, is reflected into the present price. If this process gets initiated after the restructuring move, the share can correct to about Rs 150 or Rs 130-150 pure core business of the company in which they are operating at. So this is the long hard press demand which the government should really take up, at least for protecting the interest of those old shareholders those who have tendered the share and to expeditiously implement this process of removing the land which have been enjoyed by the present promoters, Tatas for the last 10 years or so.