Multibaggers: Tulsian picks First Leasing, Nahar Spinning

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com picked First Leasing and Nahar Spinning Mills as his multibagger stocks. He is bullish on the stocks and expects these stocks to fetch better returns going ahead.

Below is an edited transcript of the interview.

On First Leasing

This company introduced the concept of leasing and hire-purchase about 35-36 years back. For the last 36 years, they have been uninterruptedly paying  dividend. For FY12, they paid a dividend of 18 percent. On the total income of about Rs 125 crore, it earned a PAT of Rs 20 crore, which translates into an EPS of about Rs 8.60 paise.

This Rs 20 crore PAT has been earned almost equally in both the quarters with the same amount- Rs 9.5 crore in Q1 and Rs 10.5 crore in Q2. So, there is consistent growth of half to one percent every quarter and that can easily be taken as the EPS of more than Rs 17.17 for FY13.

Going by the present market price, the share is ruling at a PE multiple of 3.5. By the book value too, the share is ruling at a price of 0.4 because the book value of the company is over 150.

About six months back, there was a news that promoters of the company are looking to exit from this business and sell their stake. At that time, renewed interest came back into the stock largely on the hopes that this stake sale will happen. Since then, there has been profit booking and now the share is constantly ruling at about Rs 55-60.

Purely going by their performance, the track record of all other non banking financial companies (NBFCs), have seen a good PE expansion and now ruling almost in double digits. I am not comparing this company with them because they are way ahead in terms of the volume and operations.

From consistent dividend track record and performance point of view, it is ruling at a PE multiple of 3.5 on the current year’s earning and price to book of 0.4 as on the book value of September 30, 2012. The stock looks quite interesting and one can expect a price of Rs 75 in next six months or so.

On Nahar Spinning Mills

This is an integrated textile player with four and a half lakh spindles and about 1,080 rotors. They make 12.5 million pieces of hosiery garments annually with a capacity of about 4.5 lakh meter of mercerising and dyeing plant. The overall structure of the company is quite robust. It is good for the company to cater to the export market because 60 percent of their volume comes from the exports.

Realizations from export market gives them an advantage and has reflected in their financial performance for first half. For FY12, they posted a net loss of about Rs 120 crore, but in the first half they have seen similar performance in Q1 and Q2.

On a topline of about Rs 950 crore the company earned a PAT of about Rs 35 crore translating into an EPS of Rs 9.50 paise for first half of FY13. So, one can safely assume that the company’s old problems due to huge losses made largely because of the yarn division's performance has been a game changer for the company.

In fact in FY12, all the losses came from yarn division, while in the first half that division performed very well. So, one can safely presume that the EPS should be close to Rs 17-18 for FY13.

Generally, the textile stocks are all ruling at a very low PE multiple maybe 5 to 6, but going by the expected earnings of 17-18 for FY13, it amounts to a PE multiple of 3.5. The present book value of the company is about 160-162 and results into a price to book of 0.4. It will continue to perform better now because of good infrastructure of seven plants with all the capacity.

They may focus more on export because they have good grip on the export market. Taking all this into consideration, one can expect a price of Rs 80 in next six months, but for someone booking for a couple of years, they can look at a price of Rs 110-120.

Disclosure: I have no holdings in the stocks discussed.