Multibaggers: SP Tulsian picks CARE, JK Cement

SP Tulsian of sptulsian.com picks CARE and JK Cement as his multibaggers. He expects a price of Rs 900 and Rs 300 for CARE and JK Cement respectively in next six months.

Also Read: Mkt won't see deep downside; buy cement: NBIE's Advani Below is Tulsian’s analysis of the stocks on CNBC-TV18 On CARE This is the second largest rating company. The best part about the company is that 85 percent of its total income which is Rs 227 crore of total income for FY13, comes from their core rating business while same is not the case with Credit Rating Information Service of India (CRISIL) and ICRA - the other two companies, the comparable peers who are number one and number three. That is in fact the best part about the company and that is why the profit after tax (PAT) margin is very high for the company at 52 percent with PAT close to Rs 115 crore. This performance has been flat over FY12 to FY13 but looking to the sluggishness in the economy, the rating business is also linked with the boom or the performance of the economy. When you have dull and lull in the economy, this kind of performance can be considered quite satisfactory. Going by the 7700 assignments that have been handled by the company in FY13, 40 percent or 2900 of them are from new clients. It indicates, it is not the same set of client which the company is serving. Looking at the past record, the company went public in December 2012 at an IPO price of about Rs 750 and the stock moved closer to Rs 1,000 - Rs 960-980 that time and corrected and ruled close to Rs 720. Going by the earning per share (EPS) of Rs 40 for FY13, one can conservatively estimate that FY14 should have an EPS of close to Rs 44-45. That translates the share ruling at a PE multiple of close to Rs 16-17 while CRISIL is ruling at a PE multiple of Rs 30 plus, ICRA is ruling at a PE multiple of Rs 22-23. So you have a good comfort on valuation and performance parameter. I don’t think that much downside is seen from here on but one can expect a price of Rs 900 in next six months or so.
On JK Cement I liked the Q4 numbers of JK Cement, but since then the stock has corrected.  If you break the performance of FY13 in four parts, you will find the same, the PAT of Rs 230 crore which the company has posted for FY13. The second quarter of all the cement companies are dull and so they have been posting a PAT of close to Rs 60 crore per year. In fact, there has been a good growth on year on year (Y-o-Y) basis. In FY12, they had a PAT of close to Rs 175 crore which moved to Rs 230 crore for FY13. Even the EBITDA margin on the topline of Rs 2,900 crore plus, they have an EBITDA margin of 19 percent plus that is about Rs 570-575 crore EBITDA. The overall EPS for FY13 has been at Rs 33. Going by their cement capacities - 7.5 million tonne of grey cement, 3 lakh tonne of white cement, 100 megawatt of captive power and the company is adding the capacity of 3 million tonne as well. Even their debt situation is not too bad. They have a debt of close to Rs 800 crore which is very much within the reasonable means or the valuations when taken a call on fundamentals. Price to book is also 1.2 times because book value is Rs 210. Even PE multiple of historic is 7-7.5 times but in future, going forward, I am expecting that company should be able to post an EPS of Rs 40 plus for FY14 because in the current quarter as well as the Q2, but there after things are looking quite good. They have the advantage of pricing power also because of the presence in the central and western part of the country. Overall, this stock can move to about Rs 300 in next six months or so.