In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his readings and outlook on the market and specific stocks and sectors.
Below is the verbatim transcript of the interview.
Latha: What are you recommending today?
A: I am recommending an auto ancillary stock on which we have been keeping the positive bias and we have given many ideas in that space. One more idea from the auto ancillary space is Banco Products. If you see this company, they are mainly -- in fact you can say that they are market leaders in making automotive heat exchangers and cooling system. In fact if you take a call on this product, this is so critical. When we recommended Subros at about Rs 95 about a year back and today Rs 250 though they are making air conditioner, but this heat exchangers and cooling system are very critical part and they are making in fact for the automotive as well as for the industrial groups also.
If you see, their capacity is 21 million automotive aluminimum and copper brass automotive heat exchangers and they are making about 4,000 larger industrial heat exchangers as well. That means they are catering to the automotive companies like Bajaj Auto, Hero MotoCorp, Honda, Yamaha, TVS, Tata Motors, Mahindra and Mahindra (M&M) but apart from that they are catering to the Indian Railways and the caterpillar, the earth moving makers, capital goods equipment’s makers, or maybe the heat exchangers and all sort of things.
Coming on the financial performance, company has exceedingly performed well for FY17 with topline of Rs 1,400 crore, PAT of Rs 95 crore which has translated into an EPS of Rs 13.25. What has happened, in fact six months back, because company has had huge surplus cash with them, so instead of paying hefty dividend, company’s board about six months back proposed share buyback. Afterwards they gave a thought and they dropped idea of share buyback and gave a heft dividend of 450 percent for FY17. On the face value of Rs 2 the dividend payout or dividend payment was Rs 9. So, against an EPS of Rs 13 plus, dividend of Rs 9 has been paid and inspite of that the company is left with a cash of about Rs 200 crore if I take the cash flow of the current year as well which translates into a cash per share of about Rs 22 on the historic basis and Rs 30 going forward.
So, taking all this into consideration, share is ruling at a P/E multiple of 14-15 on a current years earning. On the historic it is ruling at a 15-15.5. I am expecting EPS to be at about Rs 16 for FY18. However, looking to the growth prospects and the margin expansion likely to be seen because of the demand of the products in the automotive as well as in the industrial sectors and with promoter stake of 68 percent, the stock is looking exceedingly well. Maybe because Q4 was dull number which is always seasonal for the company that Q4 always they post dull numbers but Q1 and Q2 is always the best numbers. So taking that into consideration share at Rs 230 looks a good buy with a target of Rs 285 in next six months or so.
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