Multibagger ideas: SP Tulsian picks 2 smallcap stocks

SP Tulsian of sptulsian.com has picked up Ramco Industries and Fedders Lloyd as his multibaggers of the day.

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

Q: Why do you like Ramco Industries?

A: It is a Madras Cement group company. It makes 5 lakh tonne of cement roofing sheets per annum and 30 lakh tonne of cement pressure pipes per annum. Cement pressure pipes are used into sewage, water projects etc.

If you see the financial performance of all the cement roofing companies, we may find it little dull. But if you take a call on the other roofing cement sheet makers like Hyderabad Industries, Everest Industries or maybe Ramco, all of them are doing quite well. It is expected. Because of increase in the rural income, the demand for the cement sheet has been continuously increasing.

The company has nine plants. A couple of years back, we had the environment issues. But now all the nine plants of the company are environment compliant.

The financial performance of the company has been continuously improving. If you go by the Q1 results, they have posted a top-line of close to about Rs 260 crore with earning per share (EPS) of close to Rs 2.60. I am expecting that FY13 will end with a top-line of close to about Rs 1,100 crore with EPS of close to about Rs 11 and PAT of over Rs 100 crore.

If you go by the book value parameter also, the share is ruling at a price to book of 1, and at a PE multiple of six. Since this belongs to the Ramco Group, which is also controlling Madras Cement, I find this stock quite interesting. It can move to about Rs 80 in the next six months also.

Q: What about Fedders Lloyd?

A: If you go by the business model of this company, they are into environment control, complete air control solutions, and power projects. They have recent set up a new plant near Baroda for making tower for wind power projects. They are catering to the PSU, government, defence, private sector, and the engineering sector.

We have seen a lot of volatility. Punj Group, which is controlling these companies along with two-three other listed companies, is not enjoying a good discounting on the stock exchanges.

If you take the financial performance of the company, they have June ending, for June 2012, the company had a top-line of close to about Rs 900 crore, with EPS of close to about Rs 13.60.

With regards to the financial performance or the ramp up in the working, it is always seen in the March quarter results because they have to complete the projects for the parties to book them in the financial year.

I am expecting that maybe for the first two quarters the financial performance will look flat. We may see an EPS of close to Rs 2 in the September quarter as well as in the December quarter. But, overall, the financial year 13, June ending, should see a top-line of close to Rs 1,000 crore with EPS of over Rs 15.

This sector is a low PE multiple sector. You may see a PE multiple of eight-nine. But if one goes by the expected EPS of Rs 15 for FY13, the share is now ruling at a PE multiple of less than four. The book value of the company is quite high, quite respected at about 85-88.

In the last one week or so, we have seen some accumulation happening in the stock at the lower level. The stock has moved by about 15 percent in the last one week or so. I think this trend is likely to continue, if somebody can keep a view of about 12-18 months. I won’t be surprised to see a price of Rs 80-90, but I am taking a price call of about Rs 65 in the next six months or so.