SP Tulsian's multibaggers: State Trading Corp & Bajaj Corp

In an interview with CNBC-TV18, SP Tulsian, CEO, sptulsian.com, said that he is bullish on State Trading Corporation and Bajaj Corporation.

He said STC's performance is much better than MMTC's and the stock could touch upto Rs 200 in the next couple of years. Tulsian maintains target price of Rs 125 for STC from six months perspective. Those looking to invest from a longer term point of view can consider Bajaj Corporation.

Also Read: FMCG, utilities overvalued but safe bets now: HDFC Sec

Below is the edited transcript of Tulsian’s views.

On State Trading Corporation

I will correlate the valuation of State Trading Corporation (STC) with Minerals and Metals Trading Corporation (MMTC), because we all know that MMTC Offer For Sale (OFS) has happened at Rs 60/share and now the share has been hitting the lower circuit continuously and the lower circuit freeze will open somewhere at between Rs 55-60. The fair value where the MMTC would stabilise in the worst case scenario will be Rs 50 and the optimistic case it will be Rs 55. I am not taking Rs 60 also. This Re 1 share, if you convert that into Rs 10 the value comes to about Rs 500-550.

Take the case of STC. If you go by the business model of both the companies, both are canalised agencies with the products having divided between both of them. MMTC focusing more on minerals and metals and in the case of STC, they have other products like the metal ore, urea, sugar, wheat and all that. The financial performance of STC is much better. The Earnings Per Share (EPS) for FY13 has been at Rs 3. I do not think that EPS, top-line, EBITDA margin or Profit After Tax (PAT) is relevant because if you take the financial performance of STC, top-line of close to Rs 20,000 crore, EBITDA of Rs 250 crore, PAT of Rs 18 crore and on a Rs 60 crore equity where the face value is Rs 10, EPS is Rs 3, but the dividend payout has been better in case of STC.

The dividend of Rs 2/share has been declared out of EPS of Rs 3 having declared by the company. Even if I go by the book value parameter the book value is close to Rs 100 which is also its present market price. If you take the present shareholding or the Government of India's stake in STC, that is at 91 percent. The minimum shareholding norms has already been complied with by government in MMTC, but in STC it is placed at 91 percent, that means government has to shed another 1 percent to meet the minimum public shareholding norm which in my view is likely to happen, but see the quantum or the size of that 1 percent. OFS will not be more than Rs 6-7 crore even if you take the present market price.

People have been talking about the assets that are carried out in the books of the company at historical value, the values of which are quite high. So market cap of Rs 600 crore, net worth of Rs 600 crore and if you really see the valuations at which STC used to rule, quite stable at a price of around Rs 200 I will not be surprised to see the price again going back to Rs 200 in next couple of years, but I am giving a price target of Rs 125 in next six months or so.

On Bajaj Corporation

This is a Shishir Bajaj Group company. I find this to be an interesting play in Fast Moving Consumer Goods (FMCG) space. They are into the oral care making the Black Tooth Powder but their main business has been hair oils with 3 manufacturing plants and they have a very good distribution network. The distribution is made through 4,800 distributors to around 16 lakh retailers.

If you see they have the range of hair oil, but their almond hair oil is the best performing in the hair oil category. In comparison to other producers also, this almond hair oil has been posting a double digit growth continuously Year-on-Year and the company hopes to maintain that same kind of performance. If you go by the breakup of the total turnover, the top-line is close to about Rs 600 crore and of that 70-75 percent is contributed by this almond hair oil. You have the consistency or confidence of the double digit growth company likely to post in its top-line and if you go by the EBITDA margin that is at 35 percent, PAT margin is close to about 27 percent of the company for FY13 with EPS has been at about Rs 11 plus.

For FY14 the EPS should be at close to near about Rs 13.5-14, that means the share is ruling at a PE multiple of less than Rs 20 while other FMCG players even if you see the FMCG stocks like Marico or maybe Dabur they are ruling quite high. I agree that the perception or the following of the stock is not very high, but that is largely because the promoter stake is very high at 85 percent, they will go to dilute this to meet the minimum shareholding norms and the Foreign Institutional Investor (FII) stake is close to 10 percent.

There is a very low float of just 5 percent but since the company came out with the public issue maybe in the year 2010 and rewarded the same, it came at Rs 660 with face value of Rs 5 and now they have divided the share to face value of Rs 1. So the effective Initial Public Offering (IPO) came at about Rs 120-125. Keeping the market positions in mind, the company is debt free with cash and cash equivalents of about Rs 300 crore out of its net worth of close to about Rs 500 crore. So taking all this into consideration I think that this seems to be a good stock if somebody can add amongst the preferred stocks from the FMCG category from a longer term point of view, maybe 2-3 years view, but six months target can be taken at Rs 300.

Disclosure: No holding or interest in both stocks.