Last Updated : Jan 16, 2013 10:48 AM IST | Source: CNBC-TV18

Tulsian's multibagger picks: SpiceJet & Shalimar Paints

In an interview to CNBC-TV18, SP Tulsian of picks two stocks as his multi-baggers for the day. Tulsian is bullish on SpiceJet and Shalimar Paints. Tulsian predicts SpiceJet's target price to be Rs 60 in the next six months.

In an interview to CNBC-TV18, SP Tulsian of picks two stocks as his multi-baggers for the day. Tulsian is bullish on SpiceJet and Shalimar Paints. Tulsian predicts SpiceJet's target price to be Rs 60 and Shalimar Paints' target price to be Rs 175 in the next six months.

Also read: Book some profits, move stop losses to 6000 says Sukhani

Below is the edited transcript of Tulsian's interview to CNBC-TV18.

On SpiceJet

In the aviation sector, there has been news for the last couple of months that Etihad is a serious buyer and that they are zeroing in on either Jet Airways or Kingfisher Airlines. However, since no development is seen in Kingfisher Airlines, now the news is coming in that maybe by the month-end they should be able to conclude the deal with Jet Airways as a strategic investor in that company.

I think that will really be a big trigger, because that will flag off the valuation for all the Indian aviation sector. Whether the deal happens at USD 330 million or around that, it will give a valuation of close to about Rs 25,000 crore for Jet Airways including a debt of Rs 12,000-13,000 crore, suppliers’ liability of about Rs 4,000-5,000 crore and a market cap of about Rs 8,000-8,500 crore. So, that will really be seen as a big trigger.

Now the question that arises is who the other potential acquirers or strategic investors maybe. They can bring in two companies- Kingfisher Airlines and SpiceJet. No development has really happened in Kingfisher Airlines in terms of the debt repayment and Qatar Airways has denied that they are not in talks with SpiceJet. However, SpiceJet has clearly said that they have been in talks with some of the gulf carriers and some of them are interested in acquiring the stake in the company. The company has 17 percent market share, 47 aircrafts flying to 39 destinations.

They have a good market and once a strategic investor comes in, I do not think that there should be any problem for SpiceJet also to ramp up their market share to 23-24 percent maybe. So, I am quite upbeat about it. If you go by the valuation criteria which in my view is the sole criteria for deciding any potential strategic investors to come in and choose one of the airlines, SpiceJet scores over all other two- Kingfisher Airlines and Jet.

Jet has seen to have an enterprise value of Rs 25,000 crore. If Kingfisher Airlines takes some restructuring move, it will be seen to have an enterprise value of close to about Rs 15,000-16,000 crore. The problem is that it is a grounded airline, it has not yet taken off. However, for SpiceJet, the valuation comes to at about Rs 4,500 crore as of now.

It has a very low debt of Rs 1,200 crore, a market cap of close to about Rs 2,500 crore and some suppliers’ liability of Rs 1,000-1,200 crore. So, this seems to be a good suit for any potential acquirer. I am not too perturbed by the statement of Qatar Airways. However, since the management has indicated and even the promoter stake is quite respectable at 48-49 percent, they will definitely be looking for good valuations which they have been hinting at about Rs 70-75. So, if that happens which is likely in next two to three months, the share price can move to about Rs 60 or so in next six months.

On Shalimar Paints

Let me take the industry perspective first. Paint industry has shown the top-line and bottom-line growth in double digits for last two decades and that is the reason behind the rich PE multiples enjoyed by all these companies. On the current year’s earnings, Asian Paints is ruling at a PE multiple of 35-36 and Kansai Nerolac and Berger Paints are ruling at a PE multiple of Rs 27-28.

The company according to its Q3 numbers, is ruling at a PE multiple of close to about 16. Of the Rs 5.60 EPS the company has posted for first nine months on a top-line of close to about Rs 400 crore, Rs 2.50 plus EPS has come in only in Q3. That indicates that future is going to be quite better for this company also. This is taken as the smallest company amongst the paint industry, because there are only five players available in this sector in the Indian stock market. So, this is definitely going to improve their financial performance and margin in the time to come. I am expecting FY13 to have an EPS of close to about Rs 8 and FY14 to have an EPS of close to about Rs 10.

In the company’s past statements, the promoters have indicated that they want to exit from the company. About 62 percent stake is held by Jindals and Jhunjhunwalas both in the equal share, 31 percent each. Considering the appetite, if they announce their intent to sell their stake, we have been hearing that Sherwin-Williams of US and Asian Paints, Berger Paints will be interested in acquiring this company. If that happens, then obviously quite aggressive valuations will come in for acquisition of this company.

Recently, the company has split the share also from Rs 10 to Rs 2, that is also seen to be an exercise in that direction. So, I am quite positive from the fundamental point of view and this stake sale adds a trigger to the company which can make the share to move to about Rs 175 in next six months. Whenever we see these paint stocks, they do not move up by couple of percentage. Whenever there is any kind of positive indication coming in, in these stocks, in one go they go up by about 15-20 percent which is again possible with this company either with Q4 numbers or maybe with any stake sell. So, I am quite positive on the company with a target of Rs 175 in six months.

Disclosure: I have investments in Shalimar Paints.

First Published on Jan 16, 2013 09:51 am