SP Tulsian of sptulsian.com in an interview with CNBC-TV18 said that he sees Polyplex and Sterlite Technologies fetching good returns ahead.
He said, "Polypex is the fourth largest thin polyester filmmaker in the world and they have their manufacturing presence in India, Thailand and Turkey. The company posted robust financial performance in FY11 on the back of which they issued 1:1 bonus. This company is sitting on huge cash and looks good when considered from the current levels. The company is expected to post a topline of about Rs 2,500 crore plus in FY12."
"Sterlite Technologies is the third largest power conductor maker in the world. The problem with this company was that in Q3 and Q4 of FY11 of the power transmission division did not perform well; partly because of the non-release of order and partly because of the shrinkage in the margin. It is expected to post a jump of 50% in its bottomline ahead."
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Below is the verbatim transcript of his interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying videos.
On Polypex Corp
A: Polypex is the fourth largest thin polyester filmmaker in the world and they have their manufacturing presence in India, Thailand and Turkey. In December 2010 because of the robust performance of FY11 company has issued one to one bonus which led to equity increase to about 32.60 crore. In FY11, they have been selling their stake in their Thailand unit and bought their stake down to 51% to remain the majority partner.
In my view they have taken the advantage of the robust business cycle prevailing at that point of time. They have realized quite a good amount of money from stake stale which they have bought it down to 51%. Because of that we have seen an exceptional gain of about Rs 638 crore in the financials of FY11. That Rs 638 crore does not accrue entirely to the company because of the minority interest held by the other partners as well.
Taking all this into consideration, the company posted and EPS of close to about Rs 330 on a face value of 10 for FY11 that was largely because of this exceptional gain of the stake sale.
In the last couple of quarters there has been lot of volatility in the packaging film products in India as well as abroad also. In the last one month or so when talking to the industry guys they say that prices have now settled whatever profitability we are going to see for June quarter can easily get extrapolated for entire FY12.
So, all the packaging film makers are supposed to be doing quite well from here on with not much volatility. Taking that into consideration, the company should be able to post a topline of close to Rs 2,500 crore plus with EPS of at least about Rs 100 on Rs 10 share. On conservative note, some slippage of uncertainty in the remaining three quarters EPS is not likely to fall below Rs 80. Right now the share is ruling sub Rs 200 that translates into a PE multiple of 2-2.5.
The company is sitting on a huge cash because of the stake sale they have. The consolidated cash balance in the books of company is close to about Rs 800-850 crore. So taking all these into consideration, the kind of revival in the interest of the midcap segments, the share looks quite good at these levels which can rise to maybe Rs 275-300 in the next six- eight months time.
On Sterlite Technologies
A: They are third largest power conductor makers in the world and fifth largest in optical fibre cable. The company has been providing transmission solutions to power and telecom sector. The problem with this company was that in Q3 and Q4 of FY11 of the power transmission division did not perform well; partly because of the non-release of order and partly because of the shrinkage in the margin.
In spite of that the company has been able to post an EPS of close to about Rs 4 for FY11. Normalcy is returning back again. The Q1 results which will be out in next one month, will be an indication but still I am expecting a jump of at least 50% in the bottomline of the company. They should be able to post an EPS of Rs 6 in FY12.
But if the indications which we will be getting from Q1 results, maybe the EPS can move to Rs 6.50- Rs 7. Because of this bad performance of Q3 and Q4, if we see the share has been continuously correcting, it had a high of Rs 110-115 and now it’s ruling at close to Rs 55.
I don’t think with market cap of Rs 1,900 crore, with the kind of business model with the kind of assets the company has been holding with the status of third largest and fifth largest in power conductor and optic fibre.
Taking all this into consideration it remains a stock from a long-term point of view. If one can keep a view of maybe about one year, I am expecting the price to move to about Rs 90-100 but maybe in three- four months time also share has the potential to move close to be about Rs 75.
Q; How would you look at the upstream oil companies because despite the renegotiation of the deal and the way it turned out was up 3-4% on Friday and ONGC was up as well, so how would you approach these two names?
A: Coming on ONGC, I won’t be holding my positive view in spite of getting a big relief from the royalty as cost recoverable in the Cairn matter because of the coming FPO, which is due by end of this month or even if it gets postponed it is likely to come in the next couple of months. Because there has been clarity now in respect of ONGC the under recovery, subsidy sharing and this Cairn matter.
Going forward for Cairn I am very optimistic because now there has been contradictory opinions that the share may not move up. But, I see this as a big positive mainly for the reason that Cairn was not allowed to ramp up their production because of this royalty and cess issue.
Since that has got settled and in spite of having this burden because they have been paying cess under protest so there was no concern on that account, just a matter of dispute having referred to the arbitration.
But in respect to the royalty, that can get set off against the increased production. If you really see their Q3- Q4 performance of FY11 both 6 months have posted an EPS of close to Rs 25. So even if one takes that kind of call going forward and apply PE multiple of 9-10 or even single digit, the share holds the potential.
It can move to Rs 350-360 in the near-term. But, ultimately over a period of time maybe taking a view of 12 months or so, one needs to look into the crude price behaviour and the increased production to be made by the company. So, clearance of the deal of Cairn-Vedanta is seen to be a big trigger and big positive for Cairn India.
Q: What about Reliance Industries ?
A: In Reliance there are lot of concerns now because of these new developments having taken place on Friday. I don’t think because there was some respite from delivery based selling by the institutional investors because the trading interest and some short covering happened which led the shares move back after having touched the low of Rs 813 in the month of June again moved back to Rs 940 or 930.
But I don’t think on a fundamental basis, unless and until we are going to see the Q1 results of the company, one can take a call. Because the advanced tax figures are quite deceptive.
One should not get lured by Rs 900 crore because that includes the gain to be made by the company on the BP stake sale also because some of them have been saying that 35% increase in Q1, advance tax payment can make the company to post better Q1 numbers. At least I will be waiting for the next couple of weeks or maximum next three weeks when the Q1 results will be out.
Till then I don’t think that share has any fundamental value or the reason to go beyond Rs 900, so maybe it could hover in a range, because it has been shifting its bottom. Earlier it used to be at Rs 860-870 which has now shifted back lower to about Rs 830-850. So a range of Rs 840-900 can be seen for the whole month of July.
Source : moneycontrol.com
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