Here are top trading ideas from SP Tulsian

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his readings and outlook on market and specific stocks.

Below is the verbatim transcript of the interview.

Latha: What is your pick of the day as it were, what is it?

A: NR Agarwal Industries, that is a paper company and if you see their paper model business, they are making duplex craft paper, writing, printing, and news print. The company has four plants in Gujarat, all four plants in Gujarat with an aggregate capacity of 2,88,000 tonne per annum. Of this four plants, three are making duplex board and craft paper.

if I give you the scenario, actually first if I take the financial performance for the company, company has posted a PBT of Rs 72 crore for FY17 which was just Rs 4 crore for FY16 showing a growth of 18 times or having increased by 18 times with an EPS of about Rs 41 for FY17. Now, if you break this FY17 EPS of Rs 41, Rs 26 have come in in second half (H2) of FY17 and Rs 15 have come in first half (H1) of FY17. That means we have seen continuous increase in the prices of all its products, whether you talk of craft paper, duplex board, writing, printing, and news print.

Just to give a trend right now, in this first quarter itself, the writing, printing paper prices have risen by about 7-8 percent, while the craft paper and duplex board prices have risen by about 12-18 percent or 12-16 percent in the first quarter of FY18. So, I am quite confident that the EPS which was at Rs 41 for FY17 is going to be at least Rs 50 for FY18. The simple reason for this is that because of the lower production in Karnataka and Tamil Nadu where huge water shortage or drought like situation is prevailing and paper industry needs huge amount of water, and because of that the prices are continuously seen rising. Obviously Ballarpur Industries two paper plants already closed for last one year or so; that is also positive momentum seen continuing for paper stocks.

Apart from that, the best part for this company is that they are making the old, reusable paper, and waste paper as their raw material and they are using the mechanical de-inked paper pulp which are recycled. So, overall there is no dearth or problem for the raw material procurement and if the prices keeps on increasing, it will keep straightaway getting added to the bottomline of the company. Promoter stake of 75 percent, debt equity position is quite comforting of less than one to one with a price to book of 1.3 based on FY18 performance.

So, as I said, this is probably the cheapest paper stock with a P/E multiple of 5.5 on the current year earnings available in the market while other paper stocks are ruling at anywhere between 8-10 P/E multiple. So, stock which is ruling at Rs 278 looks a good buy and I am giving a target of Rs 350 in next six months or so.

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