Multibagger ideas: SP Tulsian's 2 picks for good returns

SP Tulsian, sptulsian.com has picked up Cochin Minerals and Rutile and Sharon Bio Medicine as his multibagger ideas for the day.

Cochin Minerals and Rutile, he says, looks quite good. “I am expecting a price of Rs 200 in six months,” he adds.

According to him, Sharon Bio Medicine can move to about Rs 450 in the next six months or so.

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Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy.

Q: What is the story in Cochin Minerals and Rutile?

A: This s a joint venture company with private promoter holding 42% and Kerala State Industrial Development Corporation (KSIDC) holding 13%. The company is making synthetic rutile, ferric chloride and ferrous chloride. Synthetic rutile is their main product and the other two products are its byproduct.

The realisations of synthetic rutile have improved because the entire production is exported by the country. The realisations have gone up by about 40-50% in the last six months or so. Synthetic rutile is mainly used by the pigment makers through the chloride process. Apart from that, it is also used as a flux for the welding electrodes and used for making titanium dioxide sponge, which is ultimately used in the paint industry. The ferric chloride is used for the affluent treatment and desalination plant for water treatment. The ferrous chloride is used for treating the waste water. It has good use in Africa, Europe and even in the countries like Japan.

If you go by the financial performance for the company in FY12, they posted an EPS of close to about Rs 72 with a top-line of Rs 240 crore and profit after tax (PAT) of close to about Rs 57 crore. If you see Q1 performance, the results are identical. If you break the FY12 results, exact 25% of that has come from the first quarter with top-line of Rs 60 crore with a PAT of close to about Rs 14 crore and EPS of close to about Rs 18.

But I won’t be extrapolating the same numbers, considering the continuous upward movement in the realisations of the synthetic rutile. I am expecting that the EPS of the company is probably going to move to about Rs 78 to Rs 80 for the whole of the FY13. It is a debt free company.

There is an interesting item in the balance sheet. The company has invested Rs 13 crore in Kerala rare earth minerals. That investment of Rs 13 crore has not been contributing anything to the working of the company. So, no information is available in respect to that investment. But I am hopeful that probably that may start contributing in next two-three years, depending on the progress of that mining process or the exploration of the rare earth minerals.

The EPS is seen to be at about Rs 78 for FY13, it is available at a PE multiple of two. There are very few players who are making this synthetic rutile. Considering that demand, I think the stock looks quite good. I am expecting a price of Rs 200 in six months. But if the same trajectory of the realisations keeps moving up for its main product, I won’t be surprise to see the price moving even to Rs 250 and Rs 300 in next 12-18 months.

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Q: What about Sharon Bio Medicine?

A: This company is largely into Active Pharmaceutical Ingredients (API), finished dosages and pharma intermediates. But all the API makers were ruling at pathetic PE multiple of four-five. There are more than 20 stocks that have seen the PE expansion happening to about 8-2 times, which earlier used to rule at PE multiple of four-six. So, probably this company also falls in the same category.

For the financial year ending June 30, 2012, the company posted a top-line of close to about Rs 780 crore with EPS of about Rs 40 because company has a very low equity base of about 10.6 crore. The company has seen continuous improvement in the performance, growth of almost 20% year-on-year. If I apply the same trend of growth for FY13, it should be able to post a top-line of 1,000 crore and an EPS of close to about Rs 48.

The share is now ruling at a PE multiple of less than eight, anywhere between seven-eight. The PE expansion is happening in all these companies. This stock looks quite reasonable. The promoter stake is quite reasonable. Promoters and the close associates are holding close to about 88-90% stake in the company. So, taking all this into account, I expect the share to move to about Rs 450 in the next six months or so.

Disclosure: I have no holdings in the stocks discussed