SP Tulsian has selected Cholamandalam Investment and Sangam as his multibagger picks for the day. In an interview to CNBC-TV18, Tulsian says his choice of picks is due to positive numbers posted by the two companies.
He expects Cholamandalam to post an earnings per share (EPS) of Rs 30 for FY14 based on robust institutional investors’ holdings and has a target of Rs 320 for the next six months.
Sangam (India) is the largest producer of polyester viscose dyed yarn maker at a single location in all of Asia, despite this the company has managed to keep its overhead cost under control. One can look at a target price of Rs 50 for the next six months, he told CNBC-TV18.
Below is the edited transcript of Tulsian’s interview to CNBC-TV18.
On Cholamandalam Investment
The theme of choosing this stock has been the good FY13 numbers posted by the company. The positive earnings have come because the company has made a preferential allotment to overseas investors in the last quarter that is Q4 of FY13 due to which there has been fresh fund infusion to the extent of Rs 200 crore into the company or addition to the net worth. That has also helped the company to post better numbers.
The EPS for FY13 has been at Rs 23 which was at Rs 14 for FY12. This means there has been an increase of close to 80-85 percent. They have a loan book of about Rs 12,000 crore and it is a non-banking financial company (NBFC) of Murugappa Group company with about 350 branches pan India.
Murugappa Group took over this company three to four years back when DCS exited as a joint promoter from the company. Since then, they have been infusing funds by way of preferential allotment and that is the reason the promoter stake also fell from 63 percent which they had till Q3 of FY13 to about 58 percent at present.
However, the institutional investors’ holding is very robust at about 37 percent or so. I am quite optimistic, I am not expecting 80 percent growth in FY14 but they should be able to post an EPS of Rs 30 plus for FY14.
If one takes into account that the share is ruling at a P/E multiple of about nine and even the present book value of about Rs 136 is price to book of just two times, while the other NBFCs are ruling at a price to book of 2.5 and P/E multiple of 11-12. So, the company should be able to post better numbers going ahead and target of Rs 320 can be looked into the stock price in the next six months.
On Sangam (India)
The reason for choosing this stock is the company’s robust FY13 numbers. This company from Rajasthan is an integrated textile player and they are the largest producer of polyester viscose dyed yarn maker at a single location in all of Asia.
If you see their capacity, they have over two lakh spindles, 4,000 rotors with a capacity of over 30 million meter for weaving, 40 million meters for Denim and processing of 54 million meters.
Their profit after tax (PAT) for FY13 is at Rs 51 crore as against Rs 17 crore for whole of FY12. All the textile companies those who are integrated players and have their own spinning, weaving and processing and fabric making, all of them are doing well. The company has kept the overhead cost under control and that is the reason FY13 EPS has been at Rs 13 which was at Rs 4.50 for whole of FY12.
This means the company has given a three times jump or 200 percent rise in its bottom-line from Rs 17 to Rs 51 crore and I am expecting this momentum to continue because better performance for whole of FY13 was back ended. Infact, that has come more in the second half and when one talks to the industry where trends are quite good, may be because of the lower prices of the raw material like cotton, one expects the company to be able to post an EPS close to about 16. So, that makes the share rule at a P/E forward earning multiple of 2.5 times. The price to book is quite low at 0.5. Generally textile stocks are ruling at a lower P/E multiple but they are ruling anywhere between 4-5 times. So, if this stock rules at a P/E multiple of 2.5 and even if it rises to 3.5, then it has the potential to give a rise of about 30-40 percent. This stock used to rule in the band of Rs 50-55 around six months back. So, the share can move to about Rs 50 in next six months or so with very limited downside.
Disclosure - I have no holding or interest in both stocks.