Expect a target of Rs 360 in next 6 months on Singer India: SP Tulsian

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.

Reema: Can you first run us through your recommendation for today, Singer India.

A: This is a debt free multinational company and Singer of Netherlands, they are holding 72 percent stake in the company. If you see the main business of the company, is that of sewing machine marketed under the brand name of Singer Merritt. We all know that those who have been growing in this country that Singer is a name to reckon with. This is a 150 year old brand.

Apart from that, company from last one year has moved into household appliances also and because of the excellent pan India distribution network, they thought that probably moving into household appliances will be a logical expansion by the consumer durable company and this is seen panning out. Now it is indicated that the company is seen going very aggressive in the time to come to expand the household portfolio because till FY17, the financial performance has not been that great on the household appliances front. Only the sewing machines have been contributing to the entire turnover and profitability of the company.

Go on the financials, Rs 375 crore turnover, operating profit 10 percent, 35 percent increase on operating profit, 55 percent increase on topline, and PAT has risen to Rs 8 crore plus; again 35 percent increase, EPS of Rs 7.50. As I said, it is a debt free company, company has the plans of moving into the domestic appliances and kitchen appliances, I am expecting that the kind of valuations now given the consumer appliances company, you get to read the news at Ken Star just getting an offer of about Rs 1,200 crore for buying the brands and all that.

I am not saying that the company is owning Singer brand, because brand is owned by their parents Netherland, but the kind of ramp up which we are going to see and diversification into the consumer appliances with MNC status, probably maybe it is not in FY18-FY19 the company will move into double digit EPS and taking that into consideration, probably at a P/E multiple of 25-26 on a forward earnings, not on the current year’s earnings, share looks very cheap.

In fact on the same basis, I have recommended Multibase if you recall about a month back which has almost moved up by about 40 percent in this last maybe 1-1.5 month. So, this is also another MNC looking very good with a target of Rs 360 expected in next six months or so.

Latha: I just wanted your thoughts on Reliance Industries?

A: Yesterday I have expressed my view that excellent numbers and if you see the core business showing this kind of tremendous increase of about 150 basis points or maybe 10 percent increase in petchem and 15 percent, that is phenomenal and that is bound to see getting reflected into the share price by P/E expansion because people have all been talking of Reliance Jio, but if you see their core business and if they keep reporting an EBIT margin of 10 percent plus, because refining segments never had an EBIT margin of more than 8-9 percent or in a range of 8-9.

Company has now moved into the range of maybe anywhere between 10 and 11.5. Similar is the case with petchem; never moved beyond 12-14 percent but now seem to be in the 14-16 percent range. These are things are likely to sustain because when the crude has fallen, when you did not have any kind of inventory loss or maybe when the GRMs have been soft and in that scenario if the company is able to post GRM of 11.6 percent, I think it is phenomenal.

So, taking all this into consideration, if I take a P/E of, maybe blended P/E of 16, if I apply different P/E multiple, maybe on refining about 10-11 P/E multiple, on petchem about 20-21 because if you see the P/E multiple given to Finolex Industry kind of things, maybe on Reliance Jio, on the net present or net asset value, finance and all that, maybe a P/E multiple of 12-14 you can easily give a blended P/E multiple of about 16-17 and that translates into a share price of 1,780-1,880 maybe in next 6-12 months.

In fact yesterday I have expressed my view that probably this time post numbers we will see Reliance Industries trading in the green with an uptick of maybe closer to 4 percent or so.

Reema: What are your thoughts on Jaiprakash Associates, I think you have been positive on Jaypee Infratech, but how would you approach some of the other stocks?

A: If you see why Rakesh Jhunjhunwala has bought, he has seen the potential of the assets and the future earnings potential after the debt restructuring. In fact, I have propagated this theory when many of the experts and channels were not agreeing with that view that equity has zero value, they are all junk, ultimately will get liquidated kind of things. So similar pattern and at that time I have been very categorical in saying that take your call on these stocks.

If you recall, at that time JP Associates was at Rs 13-14, Jaypee Infratech was at Rs 9, Bhushan Steel was at Rs 50, Monnet Ispat at Rs 30, Amtek Auto at Rs 25 and still I maintained the same view. This has happened in case of JP Associates but that kind of dramatic upturn you are going to see in cases of other stocks also which I have said. So, I am keeping a very hopeful and positive bias because if a stock specific case, I will say that JP Associates has gone leaner with a debt of about Rs 10,000 crore now with a real estate, hotel property, EPC business, cement capacity of 6-8 million tonne and these type of call needs to be taken for each company.

In fact about a month back on the channel I have said that these kind of stocks can give you a return of 100-200 percent. I still maintain my same view for these four to five stocks which I have said and I won’t be finding much risk in JP Associates even at the current levels or maybe in Jaypee Infratech if an investor has a view of about one year. You are right in cautioning that Rakesh has a cost of about Rs 13-14 and probably JP Associates maybe in the F&O ban also, so don’t take trading call, be an investor. If you take a daily swing with the price volatility, these stocks are not meant for those kind of investors, but I see huge potential even in JP Associates from here on going forward.