Tulsian's multibaggers:IL&FS Engineering, Aarti Drugs

In an interview with CNBC-TV18 SP Tulsian of sptulsian.com picked IL&FS Engineering and Aarti Drugs as multibagger stocks. He is bullish on both the stocks and expects them to fetch better returns ahead.

Looking at the performance and parentage of IL&FS Engineering one can consider buying this stock. Tulsian sees a limited downside to this stock and has a target price of Rs 75 from next six months view. "If held for 1-2 years point of view then I won’t be surprised to see the price moving to Rs 100-120," he added. Aarti Drugs looks reasonable at current price with a limited downside. The price can move to Rs 200 in the next six months, he added. Below is the edited transcript of Tulsian’s interview with CNBC-TV18. On IL&FS Engineering This is an old company of Maytas property held by Rajus, which was acquired by government and given to IL&FS Engineering. Now the promoters of the company are IL&FS and the Saudi BinLadin Group. The promoter stake of 67% is held to the extent of 35% by IL&FS and 32% by Saudi Bin Laden Group. The company is into infrastructure development, project management with focus on power, irrigation and roads. They have very good quality orders. Earlier, they used to operate only in Andhra Pradesh, but now they have moved out of Andhra Pradesh and have been making a pan India presence. Apart from that, they are into development of integrated and township projects as well. We will have to consider the financial performance for 15 months because they extended their year to June 30. They posted a topline of Rs 1,800 crore. The EBITDA has been at Rs 140 crore, while the interest burden is close to Rs 165 crore. With interest much higher than EBITDA by about Rs 25 crore and depreciation of Rs 75 crore, the net loss posted by the company is around Rs 120 crore.  But now with the commitment of new promoters, specifically Saudi BinLadin Group and IL&FS, both are infusing fresh funds into the company. The completion of township and real estate or housing projects under taken by the company is likely to bring in good amount of profits in the next couple of years. That will help the company to wipe off their losses and improve their working going forward. The present marketcap of the company is only about Rs 450 crore. About 67% his held by both promoters and 28% stake is held by institutional investors like ICICI Bank, IDBI Bank and many other private mutual funds. So, they all are invested into company with a long-term vision that the company is likely to do very well ahead. This will get reflected in the next year’s working also. Generally the debt burden or interest burden in these types of companies is more from project and working capital point of view than term loan, so I am not too worried about that. Once promoters start taking infusion of funds because they have already issued optionally convertible debentures, which are due for conversions maybe in the next 6-8 months, it can bring in about Rs 250-300 crore into the company Taking all this into account and looking at the parentage and pedigree of the company, the stock looks very good. The downside is very limited. It can move to Rs 75 in next six months. If held for 1-2 years point of view then I won’t be surprised to see the price moving to Rs 100-120. On Aarti Drugs It makes API, pharma intermediates and steroids. It has total eight plants at two locations. One is in Tarapur in Maharashtra and the other is at Sarigam in Gujarat.  Their Q1 earnings came well. They posted a topline of Rs 190 crore and EPS of Rs 7.90 for the quarter, while EPS for whole of FY12 was close to Rs 18 or maybe sub-Rs 18. Their profit margins have been the main reason for contribution of this improved performance because topline has shown a growth of about 15-20%. If I take a call on overall yearly performance, they they have posted topline of about Rs 660 crore in FY12 with EPS of close to Rs 18, I am expecting that in the current year they should be able to post a topline of close to Rs 840-850 crore with expected EPS of close to Rs 32-33, that is a conservative estimate. Considering that investments are now being made into midcap pharma companies because frontline companies have already run up quite a lot, this company can come in focus of investors sooner or later.  With an expected EPS of Rs 32, the share is still ruling at PE Multiple of 5. The present book value of the share as on June 30 is at Rs 155-156. Taking all this into consideration, the stock looks reasonable at this price with a limited downside. The price can move to Rs 200 in the next 6 months or so.