SP Tulsian's multibagger picks: Deepak Nitrite, HOEC

In an interview with CNBC-TV18, SP Tulsian of sptulsian.com picks Deepak Nitrite and Hindustan Oil Exploration Company (HOEC) as his multibaggers. He expects Deepak Nitrite to touch Rs 320 and HOEC Rs 85 in the next twelve months.

Below is the verbatim transcript of SP Tulsian's interview with CNBC-TV18 On Deepak Nitrite
Deepak Nitrite is a leading maker of organic, inorganic, fine and speciality chemicals. Lately, this company has moved into high-margin products which are catering to pharma, rubber, colourants and imaging products, paper products and other industries where this chemical is used.
They have five plants in India, predominantly in Gujarat, Karnataka and Maharashtra. If I go by their financial performance for nine months, they had posted a topline of Rs 710 crore, while this was at Rs 790 crore for whole of FY12. However, the operating profit remains the same for both periods. For nine months, the operating profit is at Rs 37 crore which was also at Rs 37 crore for whole of FY12.
What I liked about the company is that they have improved their profit after tax (PAT) because of cost control. And EPS has been at Rs 27 for nine months against Rs 22 for the whole of FY12. The company paid a dividend of 60 percent for FY12. So, if I go by the present trend, the EPS of Rs 27 which they have posted for nine months has been identical in all three quarters, closer to Rs 8.50 to about Rs 9.50.
One can safely assume that the company is likely to post an EPS of closer to Rs 8 at least for Q4, which will take the figure to about Rs 35 for FY13.
However, now the focus has shifted on high-value high-margin products, I am expecting the company to post an EPS of Rs 40 plus for FY14. If I go by the present share price, the share is ruling at 6.5-7 times and even the book value as on December 31 has been at about Rs 270. So, the equity is quite low. They have an equity base of less than Rs 11 crore.
So if I go by the track record and improvement in profits, these chemical companies are ruling at a low PE multiple. However, with the increase in the bottom-line and margins,  one can expect PE to get applied at about Rs 9 or so. So, taking all this into account, I am expecting that the stock can move to about Rs 320 in the next 12 months or so. On Hindustan Oil Exploration Company (HOEC)
Prior to the company having declared its Q3 numbers, it used to rule closer to about Rs 98-100. In Q3, HOEC has posted a loss before tax of Rs 574 crore. Because of some deferred tax credit, the net loss is looking lower at about Rs 525 crore. However, we should take the loss before tax of Rs 574 crore for the quarter under review. This whole item is constituted by an impairment provision of Rs 572 crore, which they have provided for the PY-1 Field, because of lower expected output of gas from that oil field. 
If you go by the present assets held by the company, they have nine oil and gas fields in India, Assam, Rajasthan, Cambay and Cauvery Basin.
The promoters of the company, Eni of Italy, which holds about 47 percent stake in the company and acquired this controlling stake about three-four years back, have expressed that they want to exit from this company.
And probably, in this cleaning-up process or reassessment of the reserves in all the oil blocks, the participating interests of the company ranges from 20 percent to 100 percent in these nine blocks.
So, it seems that the promoters are reassessing the reserves and potential of each oil and gas blocks. This may be an exercise been carried out of providing Rs 572 crore as impairment loss for PY-1 field, and this I see as one-off.
What I liked about the company is that, going forward, I expect stake sale by promoters, which is likely to happen at about Rs 100 or so. Earlier, when it used to rule at about Rs 125-130, then too the indication was coming in at about Rs 100-110 per share. So, if the stake sale happens, that is one trigger.
Secondly, the stock has remained quite under-owned in last 45 days. It used to rule at about Rs 95-100 and now has corrected immensely and fallen to a sub-60 level. However, for the last couple of days, the stock seems to be witnessing renewed buying interest. And the stock having bottomed out, there is a positive bias on the upstream companies, oil and gas stocks. So limited downside risk is seen from here on, and if one can wait for the stake sale to happen which may get consummated in next one year, one can expect a price of Rs 90-95 also. I am setting a target of Rs 85 for next six months or so. Disclosure - No holding or interests in both stocks.