Multibaggers: Tulsian bets on Himatsingka Sei, Munjal Showa

In an interview to CNBC-TV18, SP Tulsian, sptulsian.com recommends a 'buy' on Himatsingka Seide and Munjal Showa. Tulsian is bullish on the stocks and suggests holding them for a period of 12 months or so.

Below is an edited transcript of Tulsian’s interview on CNBC-TV18

On Himatsingka Seide

This is a vertically integrated textile major mainly catering to the home market segment. The company has the capacity of processing 23 million meters fabric per annum, have 360 weaving machines plus and are making 32 lakh bed sets per annum. They are catering to the whole world and are known for their quality.

If you see their financial performance for first nine months, they had a top-line of Rs 1,300 crore with bottom-line of Rs 35 crore and for FY12 they had a bottom-line of Rs 33 crore. This seems to be a turnaround story where the company is gradually ramping up their operations, trying to curtail the debt and improve their profit margins.

The EBITDA margins seen for the company for these nine months has been at around 9.5 percent and PAT of Rs 35 crore for nine months has surpassed the FY12 PAT of about Rs 33 crore with EPS for nine months placed at about Rs 3.55. Going by the FY13, it is likely to post an EPS of Rs 5 plus, but maybe for FY14 the company should be able to report an EPS of close to Rs 7-7.5 and that makes the stock to rule at a PE multiple of sub-5 times.

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Considering the book value parameters the stock has a book value of Rs 61-62. Taking all this into consideration, the only problem is that one should not expect too much upside in the stock. You need to have 12 months time horizon and the gradual improvement which we are seeing in the financial performance can make the share price to move to Rs 50 or so.

On Munjal Showa

The company has posted good numbers yesterday. They are making the shock absorbers and struts for two wheeler and four wheelers and their clientele are Hero Moto, Maruti, Honda Motorcycles, Honda Siel Cars and all other automobile players who are into two wheeler and four wheeler space. This company is in technical and financial collaboration with Showa Corporation of Japan who are holding 26 percent stake in the company and 39 percent stake is held by the Munjals with about 65 percent as the promoter stake.

Going by their top-line of close to Rs 1,185 crore for first nine months, the top-line is equally broken in three quarters Rs 390 crore in each quarter. Even for Q3 they had a top-line of Rs 390 crore. If you go by the profit performance the profit has been very good. The company which had a PAT of Rs 39 crore for nine months, of that Rs 16 crore has come in Q3 that means 40 percent of that has come in Q3 alone. Similar is the story with the EPS as well, Rs 9.60 EPS in first nine months of which Rs 4 EPS has been posted in the Q3 alone.

The company is now improving their profit margin and maybe the top-line will also start increasing going forward. They should be able to post a top-line of close to Rs 2,000 crore for FY14. FY13 will be having a top-line of close to Rs 1,600 crore with EPS of Rs 14. But for FY14, I am expecting that EPS could be about Rs 17-18. If you go by the PE multiple it is sub-4. Even the book value is quite good. The promoter stake of 65 percent is quite good. So, taking all this into consideration this seems to be a safe auto ancillary stock which can give you a low but steady return with a price target of about Rs 85 in next 12 months or so.

Disclosure: I have no holding or interest in the stocks discussed.