In an interview to CNBC-TV18, SP Tulsian, sptulsian.com recommends Chettinad Cement and Indus Fila as his multibagger stocks. Tulsian is bullish on these two stocks and expects better future returns.
Below is an edited transcript of Tulsian’s interview on CNBC-TV18.
On Chettinad Cement
Considering the volume of the stock yesterday, it seems the company must have got the permission from the stock exchanges to initiate the delisting move. This is because three-four months back the promoters had indicated that they want to delist the company since they have the stake of 88.4 percent in the company. That’s why we saw good activity in the stock at that time, when it used to rule at about Rs 750-800. So now considering the volume yesterday on the stock exchanges, it seems that the process of delisting will get initiated soon.
If I go by the fundamentals of the company, it has three cement plants with capacity of 11.5 million tonne with captive power of 105 megawatt. Apart from that, the company is also setting up a two million tonne plant grinding unit in Solapur which will be operational may be in next 8-10 months. Going by the valuations, the present market cap of about Rs 2800 crore and enterprise value of Rs 3600 crore, the value per tonne works out to about USD 45 which looks very low.
Considering the delisting move, going purely by that theme, promoters have a stake of 88.4 percent. That means the public float is close to about 12 percent. So they need to acquire close to 6 percent from the public. If I go by the share holding pattern, Tamil Nadu Industrial Investment Corporation Limited (TIIC) is holding 3 percent plus in the company. Being a state industrial investment unit, they will definitely ask for the correct valuations and won't tender the shares. In that case it will be difficult for the company to mobilize the 6 percent kind of stake, in spite of some High Networth Individuals (HNIs), about 300 HNIs are holding 5 percent stake in the company.
In case the promoters are able to manage because of this concentrated holdings, definitely TIIC will take a big objection and will not allow the company to get listed. I am taking a valuation call of about Rs 1400-1500 per share and that should not be a big problem because the present market cap of Rs 2800 crore. Even if you increase it by 40 percent, the market cap goes up by Rs 3800 crore and shelling out 10 percent of that should not be a big problem for the company.
If you see the financial performance for first half, it had a top line of Rs 1270 crore with PAT (Profit After Tax) of close to Rs 115 crore which translates into an EPS of Rs 30. So for FY13, the company should be able to post an EPS of close to Rs 68-70 because H2 of all cement companies are always better. So also taking that into consideration and going on the delisting theme, I am expecting share to move to Rs 1100 in next three months or so. Though I am holding a higher target, but one can safely expect a price of Rs 1100 in three months or so.
On Indus Fila
This is a textile company. They went public just five-six years back and since then have been facing problems. The company has three plants, all in Karnataka; two in Bangalore and one is an integrated company close to Bangalore. They have the process house, the weaving unit. They are making fabrics and garments and are largely catering to the export market and reputed brands.
Up to FY11, the company was making losses but since FY12 it has turned around and is making profits. Infact for entire FY12, they had an EPS of Rs 3.15. They have a very low equity base of about Rs 20 crore. Going by the first half performance the top line is close to Rs 200 crore, plus the PAT close to Rs 2 crore. Cash profit has been close to Rs 8 crore. So again going by the same performance and considering the FY12 performance, I am expecting that even FY13 should have an EPS of Rs 3 plus, while the cash EPS may be close to Rs 6 plus.
Considering the present discounting given to the textile companies, they are generally between four to five times. So one may say that the share is ruling at its optimum value, but I am not expecting that because the turnaround cases are always enjoying a higher valuation, the present market cap is very low. Infact one can place this company into the micro cap because the market cap is sub Rs 25 crore.
Even if I take the debt of the company which is Rs 200 crore; half for the working capital and half for the fixed assets, on valuation front also it looks quite low. Considering the textile stocks which are again in focus and small textile stocks going up, and since this company largely caters to the export markets, maybe a weak rupee or currency is to their advantage. So taking all this into consideration and if you can take a longer time horizon of maybe one year or so, one can expect a gain of close to Rs 40. So that’s the reason I have recommended Indus Fila with a price target of Rs 16 in next one year or so.
Disclosure - No holdings in both stocks.