SP Tulsian of sptulsian.com is recommends investors to look at promising stocks like Repco Home Finance and Wheels India. He feels both these stocks have the potential to fetch huge returns in future.
On Repco, Tulsian has a target price of Rs 250 for a year. He also sees the stock giving 20 percent return every year. He expects Wheels India to see a touch Rs 1,100-1,200 and gives a price target of Rs 1000 for the next six months.
Below is the edited transcript of Tulsian’s interview on CNBC-TV18.
On Repco Home Finance
I am impressed with the numbers that were posted by the company. The Q4 numbers, the top-line of Rs 114 crore with EPS of close to about Rs 5.90 with PAT of Rs 28 crore is good. This company went public on March 13 and this has been their first quarterly numbers after the company got listed. They have mopped up Rs 270 crore at an issue price of Rs 172 per share. So, obviously if one takes the return on net worth close to about 18-20 percent, they should be able to earn additional Rs 50 crore from these additional IPO funds which they have mobilised.
The whole of FY13 had an EPS of Rs 17, but if one takes the Q4 EPS of Rs 5.90, it probably indicates that FY14 will be having an EPS of maybe Rs 24-25 and that is a conservative estimate.
If one goes by the business model, this is a company promoted by the Repco Bank which is a Government of India owned bank and has a very strong presence in the southern part of India. They have 73 offices, 19 satellite centers and the best part is that the average loan ticket of the company is close to Rs 9.5 lakh per borrower and that is very ideal.
The flats are getting sold between Rs 20-25 lakh and if one has this kind of average loan ticket size, that indicates a very good situation for the company in terms of the recovery, in terms of charging slightly higher rate of interest. If I go by the fundamentals, the present book value of Rs 102 can get increased to about Rs 124-126 by end of March 31, 2014.
This means the share is ruling at a forward price-to-book of 1.6 and on the historic it is 1.9. If I take the expected EPS of Rs 24-25 for FY14, it is ruling at a sub-PE multiple of less than 8. That has been the case with many other mid-sized housing finance companies, I am not talking of the larger ones. So, taking all this into consideration, I think this is a very good stock which one could have in the portfolio with couple of years view and expect a 20 percent kind of return every year and my price target for one year is at Rs 250.
On Wheels India
This is a TVS Group company. This company makes steel wheels for cars, utility vehicles, trucks, buses, tractors and construction equipments and this is in technical financial collaboration with Titan of Europe. There has been some indirect shareholding change because of the acquisition of this foreign promoter by another company there and they came out with an open offer where they mopped up an additional 5.5 percent stake. Now this foreign collaborator, that is Titan Europe is holding close to about sub-42 percent stake in the company while TVS is holding close to 49.9 percent stake. So, a combined stake of both these promoters is close to about 92 percent.
There has been talk that probably the TVS Group is not very happy of this foreign promoter having increased their stake to 42 percent and they are either looking to divest their stake or talking to them of reducing their stake. If one goes by the listing norms, they will probably get six months time because this open offer has just concluded, so promoters can give an undertaking that either they will bring down the shareholding or they will increase the company’s equity base by which their shareholding will reduce.
In the meantime, we are expecting that probably some kind of settlement may happen between the promoters to realign their shareholding which can happen at a very high price and apart from that, if one takes a fundamental call also, Rs 27 crore has been the profit of company for first nine months on top line of close to Rs 1,500 crore which translates into an EPS of Rs 27.
It is close to Rs 36-40 EPS and because of these delisting hopes or maybe the realignment of the shareholding between the promoters, though I will not call it as a hostile bid, but yes things can definitely make the shares to move to a level of Rs 1,100-1,200, but I have taken a price target of Rs 1,000 in next six months or so.
Disclosure: No holding or interest in both stocks.
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