STC India has target of Rs 125: SP Tulsian

SP Tulsian at sptulsian.com told CNBC-TV18, "I will correlate the valuation of State Trading Corporation of India (STC) with Minerals and Metals Trading Corporation (MMTC), because we all know that MMTC offer for sale (OFS) has happened at Rs 60 per share and now the share has been hitting the lower circuit continuously. I think that the lower circuit freeze will open somewhere at around between Rs 55-60. So 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."

He further added, "This Re 1 share, if we convert that into Rs 10 the value comes to about Rs 500-550. Take the case of STC. If we go by the business model of both the companies, both are canalised agencies with the products having divided between both of them. MMTC focuses more on minerals and metals, but even in the case of STC also they have other products like maybe 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 we take the financial performance of STC, topline of close to Rs 20,000 crore, EBITDA of Rs 250 crore and PAT of Rs 18 crore. 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," Tulsian said.

He further said, "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 we take the present shareholding or the Government of India's stake into STC, which 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. See the quantum of that 1 percent, OFS will not be more than Rs 6-7 crore even if we 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 we 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," Tulsian said.

Disclosure: No holding or interest in the above stock.