SP Tulsian- multibagger stock ideas for 2011.

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SP Tulsian- multibagger stock ideas for 2011.

He is bullish on

• Binani Industries, 
• JP Infratech, 
• Kansai Nerolac and 
• First Leasing.

Tulsian is positive on Power Grid in the long-term.

However, he is cautious on

• Suzlon Energy, 
• Praj Industries and 
• Core Projects.

Q: Let us start off with Binani Industries, that stock has been on a roll offlate, the last two-three trading sessions have been very smart, what is the story there?
A: There is interesting story developing in this stock. I have covered this stock earlier when it was ruling at around Rs 140. Since then we have seen it moving to Rs 240 and then the market carnage has brought it down to about Rs 165-170 levels. As you have rightly said in last couple of days, we have seen it moving by about Rs 50-60. This is the behaviour, these kind of stocks show, that if you have the conviction that the fundamentals are intact, which I have in this stock, then you see this kind of upmove coming in.

Let us come on the story, the company is now presently holding 70% stake in Binani Cement. Binani Cement is having present capacity of close to about 9 million tonne and they are expanding this capacity to 15 million tonne, which will get completed in year 2011, maybe in the next 12 months. So, they will be having the geographical presence capacity of close to about 10 million tonne in India and the balance 5 million tonne will be spread in Mauritius, China. So, they will be having the global presence.
Now, if you see the Binani Group, they have been very conservative. Apart from that, they have recently initiated a move to delist Binani Cement. As I said, the Binani Industries is already holding 70% in Binani Cement and the promoter i.e. Binani Industries has initiated a move to delist the shares of Binani Cement. If you see the shareholding pattern of Binani Cement, about 24-25% stakes are held by four-five institutional investors. So, I don’t think that delisting should be a problem by the company in mopping up all the shares at about Rs 100 per share. So, I am presuming that Binani Industries will be able to delist the Binani Cement. They will be having the effective control of the company with the stake of close to about 95%. The next logical move on part of the promoter would be to sell the cement division because we have seen that companies, which have a capacity of more than 10 million tonne, can fetch very good valuations close to about USD 170-175 per tonne. We only have three-four companies in this space, I am not talking of the larger ones like Shree Cement, India Cement, Madras Cement and the fourth could be the Binani. So, I am taking a call that ultimate intention of the promoter would be to delist Binani Cement, acquire the control of the company by having 95% stake and then go for the sell of the cement division.
If all these things happen, the present enterprise value of the company, Binani Industries, post delisting will be close to about Rs 2,500-2,600 crore. If they initiate this sale of 15 million tonne and if I calculate the USD 175 only for 9 million tonne, they can fetch about Rs 8,500 crore. So, there is huge value upside seen in the stock. I attribute a value of, even if they go for part equity dilution and all that, share has the potential to move to about Rs 800-1,000. Now, it is ruling at around maybe Rs 220-230. But let us not take such a optimistic call and even if the company acquires and it becomes the 95% owner of this Binani Cements then also the share is seen to have huge value. I am taking a call of about Rs 400 atleast in the year 2011.


Q: JP is the other stock you have picked up, JP Infratech, it has seen a fairly decent bump up in the last three weeks itself, it is about 20-25% gain in just three weeks. How much of a multibagger in 2011?
A: This company is implementing 165 kilometer six-lane expressway. But along with that they have the 6,175 acres of land available for development which translates maybe 400 million of sq ft. Now, two news are coming in this stock are that the company is ahead of the completion of this expressway, the deadline for completion is April 2013. But part of this expressway will get commissioned maybe in the month of April 2011. Post that, maybe by end of 2011, maybe by December 2011, we will be seeing the complete starting of this 165 kilometer of expressway patch because even the F1 track is coming in that area which is also likely to get completed by October ’11. So, this is one trigger.
Second, we have seen company prepaying part of the debt, which they have availed for the completion of this loan, i.e. largely because of the sell of the premises. Presently company is only developing the first pocket which they are holding at Greater Noida of about 1,200 acres. For FY11, the company is likely to make a net profit of about Rs 2,000 crore which will translate into EPS of about Rs 15. But since that is not the trigger here, the amount which they are mobilising by this development of properties getting used for repayment of the loan, so maybe because company is entitled for 80I income tax benefit, so all their profits are tax free for next ten years. Company maybe next two-three years will try to accelerate the process of development of this land and then mobilise a huge chunk of money. I won’t be surprised to see a mobilisation of close to about Rs 10,000 crore as cash flow from development of property by the company in next three-four years because the entire sale proceed is not getting booked into accounts because of the project completion method.
So, taking all this into consideration the completion of the expressway ahead of schedule with concession period of 36 years and the development of the real estate, which they have acquired again at the acquisition cost by the authority and the entire land is in their possession, the entire land is 98-99% paid. So, taking all this into consideration, this is a very excellent play on infrastructure as well as on the realty. Again realty cost, they have not acquired the land at a very high price and share is now available maybe 30% cheaper than the issue price which the company has made last year. So, taking this into account, I think that share is capable to give a return of about 40-50% in 2011 from the current levels.




Q: What about Kansai Nerolac? If you looked at the chart history, it has had an excellent run, it has moved all the way from Rs 500 levels to Rs 1,000 now, so double this particular year. How much more of an upside do you see on the stock from these levels?
A: I am very positive on the paint industry probably this is the only industry, which has been posting a double digit growth in last two decades. I don’t think that any industry must have posted a growth in double digit for last two decades. If you come on Kansai Nerolac, they are number one in powder coating and automotive segments and overall number two. I am not going too backward into the history of the financial performance of the company, but if I see FY10, they had before interest, taxes, depreciation and amortization (EBITDA) margin of about 14.4% and the EBITDA margin has improved to 16.5% in H1. Now, since they are sitting on a cash of about Rs 400 crore, the company is contemplating an expansion of about Rs 650 crore which will get completed in next two years times, so obviously the intention of the company is to retain the number two positions. Since the expansion is all likely to get completed with the internal accruals, company will continue to enjoy the debt free status.
If I compare the P/E multiple, this paint industry is largely having very high P/E multiple. If you take the case of Asian Paints, it has a P/E of more than 30. If you take the case of Berger Paints, it has a P/E of 25-26, while this company is ruling at a P/E of 21-22. As you have said that the share has risen much more in this last one year. But still maybe with the expansion and with the increase in the EBITDA margin and increase in the capacity down the line 18 months or so, I see further improvement in the share price largely due to the earning growth and P/E expansion and can be very safe blue chip kind of stock which can give 30-35% return in 2011.


Q: The power space has looked extremely attractive in yesterday’s trade and after many days we have seen a resurgence in that space, the likes of Suzlon, NTPC, Power Grid, Tata Power. Anything that you think looks good for a medium-term to longer-term perspective?
A: The stocks, which you have said, all are mix; Power Grid in Transmission, Suzlon is more into the capital goods kind of thing and rest all are into the power generation. If you see on the power generation front, I am quite positive because if you take the companies like Adani Power orJSW Energy, which at a frequent interval have been commissioning each unit of 300-330 megawatt (MW), adding to their capacities.
Similarly, is the case with NTPC also because we have seen the newsflow that NTPC and Power Grid have signed an agreement. The NTPC, which was lying lull for quite some time with a no capacity increase, may go little aggressive so that has been seen as a trigger for these shares to see upmove. So, taking all this into consideration, I am quite positive on power generation.
Coming specifically on Power Grid, the company is enjoying 50% market share of transmission and distribution and they have aggressive growth plans, they have completed their follow-on public offer (FPO), the share has been practically lying its low. So, maybe on a longer-term basis, I am positive on Power Grid also. But I don’t think that I am not holding too positive view on the Suzlon because considering the financial situations of the company, the stress on the balance sheet still exists. I don’t think that this could be a technical bump or maybe the next move likely to get initiated by the company for easing the company. But I am not too comfortable on Suzlon from a fundamental point of view.

Q: Let me get back to fundamental stocks that you have picked up, I never expected First Leasing to be on your list. Why are you bullish on that as a multibagger?
A: Mainly from the fundamentals. What we have in place for the company is the financial performance or the fundamentals in place because EPS of Rs 16 for FY11 with a book value of Rs 120, so, that translates into a P/E multiple of 5 price to book of 0.7. What we have all been missing is this company has been the growth because if you see the company has been posting flat performance, maybe for last two-three years with a EPS of ranging about 15-16. But now I think the time has come, NBFCs have come on flavour or on radar of all the promoters also to expand to grow. First Leasing being the first company, I don’t think that they will be left behind.
When you have the comfort on the fundamental side, I don’t think it is seen risky to venture into that stock. Maybe with the growth announcement plans getting announced by the company or even could be as an acquisition target, this share can give a good upside from hereon of about 30-40% in a year.


Q: Market maybe very flat, but many individuals stocks have started to move quite well. Do you see any attraction in these stocks? I will name them for you, Aban Offshore, that has been up about 12% in this December series, Praj Industries that has started to rally quite a bit and Core Projects if you have looked at that, it has seen 30% move in this December series. Anything fundamentally looking good?
A: In Aban, yes, there has been news that they have been able to deploy their one rig and the share has been lying quite low. With the crude prices going up, we see all these support services, the oil drilling services kind of companies, they start going up. Aban being the largest player, because of that, the share has started moving up.
Coming on Praj, again because of the increase in the sugar production expected, there are quite hopes that new distilleries or the new order flows from sugar companies will come, which will result into the setting up of distilleries. But I don’t think that is likely to happen because sugar is typically an industry, which needs to be taken a year-to-year call and the last year has not been so good. So, I don’t think that the capex will be chalked out by these companies. But yes, because they had bad performance, the share has corrected a lot. Hence, we have some technical renewed buying interest coming in the stock. But on a fundamental basis, I think share has reached its value of close to about Rs 90 and I don’t think that upside is seen beyond that.
Core Projects, I think this is the most unpredictable and the risky stock. Only the brave hearted traders can indulge in the stock because of the kind of newsflow which we keep getting in and the kind of fall which we see in the stock. We have been seeing that it is remaining frozen in the F&O segments for consecutively for months which all seems to be a move by the operator or by the close group of traders and all that. So, my advice is to remain away, only brave hearted traders can look to trade in this stock.