Multibase India gives 100% gain since SP Tulsian’s recommendation
SP Tulsian, the veteran stock picker, has been tracking the fortunes of Multibase India like a bloodhound.
He first recommended a buy of the stock on 7th June 2017 when it was languishing at Rs. 345.
His logic for recommending the stock was brilliant and flawless:
(i) Multibase India is a multinational company (MNC) in which Dow Corning, the global behemoth, holds 75 percent stake;
(ii) The company manufactures high-technology products like thermoplastic elastomers, polypropylene compounds, silicon, thermoplastic master batches etc for which there is insatiable demand from automobiles, engineering, healthcare, stationery, personal care, personal hygiene, etc;
(iii) In addition to cutting-edge technology from Dow Corning, Multibase India has its own indigenous strong R&D network in India;
(iv) The financial performance is showing continuous improvement. The top line and bottom line are growing at a CAGR of about 25 percent.
(v) The balance sheets is very clean with a net worth of about Rs 60 crore, cash of Rs 25 crore, zero debt, etc.
“I expect the company to have huge potential,” SP Tulsian said in a prophetic tone.
He thereafter did complex number crunching regarding the EPS and the P/E ratio and confidently predicted that the stock would surge to Rs. 430 in the next six months.
However, Multibase was in no mood to wait six months. It surged like a rocket and breached the target price by September 2017 itself.
Tulsian was not dissuaded. He went back to the drawing back and revised the target price to Rs. 555.
Needless to say, that target price is also history now.
Multibase is presently standing tall at Rs. 682 and has posted a massive gain of nearly 100% in just six months.
|MULTIBASE INDIA LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||869|
|EPS – TTM||(Rs)||[*S]||12.80|
|LATEST DIVIDEND DATE||–|
|BOOK VALUE / SHARE||(Rs)||[*S]||58.15|
[*C] Consolidated [*S] Standalone
|MULTIBASE INDIA LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||SEP 2017||SEP 2016||% CHG|
(Source: Business Standard)
Not to late to buy Multibase India
In his latest interview to CNBC TV18, SP Tulsian again came out with all guns blazing in favour of why Multibase India is still a great buy.
He advised investors that instead of dabbling with so-called dubious and dangerous stock, it is better for them to stick to high-quality MNC stocks like Multibase India.
He explained that the bottomline is growing at a CAGR of 30-33% which is simply awesome.
“For FY16 they had an Earning per share (EPS) of about Rs 8, FY17 EPS was sub Rs 11. FY18 EPS will be around Rs 15 and FY19 EPS will be about Rs 19. That means every year for last four years on the bottom line the have been showing a compound annual growth rate (CAGR) of about 30-33 percent …..
… If you have these kind of things coming in, I think that stock has extremely positive view going ahead in terms of margin expansion may not be in terms of topline because of the new product introduction and new applications in the various sector,” Tulsian said with his customary clarity of thinking.
SP Tulsian predicted that Multibase India would see a target price of Rs. 860 within six months and a 4-digit price of Rs. 1,000+ if one is inclined to stay put throughout the year.
What about the demand for airbags?
Surprisingly, SP Tulsian did not refer to the fact that Multibase and its illustrious parent are global leaders in the manufacture of car airbags.
According to a knowledgeable investor “Multibase together with its global affiliates is the global market leader for injected airbag covers has over 15 years of track records in terms of reliability and durability with material approvals at all major US, European and Asian OEM’s. Multiflex® TPO and TPE-S materials produced by the company meets all safety for driver, passenger, knee, side and curtain airbag covers.In addition to this product ,company also producing various products for fluid transportation ,sealing applications,Dash Board finishing products..etc”
Airbags, parking sensors mandatory for cars made after July 2019 to stop them from becoming ‘death traps’
According to press reports, all four-wheelers that come off the production line after July 1, 2019 will have to be mandatorily equipped with airbags, seat-belt reminders, reverse parking sensors, and a manual override for the central locking system. The Ministry of Road Transport has passed the mandate in order to better road safety scenario on Indian roads. The Ministry has already finalised the timeline for implementing these systems, which will officially notify in a few days, stated a report in The Times of India.
It is also stated that Transport Minister Nitin Gadkari has approved the following changes to ensure passenger and pedestrian safety in light of the numerous deaths in road accidents. The budget cars, that are most common on city streets, usually have more than one of these safety features missing. The transport ministry decision is in accordance to global safety standards which state that “no vehicle should be a death trap”. Existing car models will have to comply with the safety measures by October 1, 2019.
It is obvious that this will be a mega trigger for Multibase India.
Frugal salaries of top brass
I also did some research of my own by peeping into the annual report.
One aspect that surprised me is that Deepak Dhanak (see Linkedin profile), the Managing Director, took home a salary of only Rs. 49.87 lakh in FY 2016-17 (including variable pay).
Prima facie, this appears to be very reasonable given that Multibase India is a MNC and must be paying remuneration to its executives according to Dow Corning’s European standards.
Likewise, Satya Nagesh Ventrapragada, the Chief Financial Officer (CFO), who was appointed on 14th October 2016, took home a pay of only Rs. 6.25 lakh.
This means that his monthly salary is about Rs. 1 lakh or so which is also very reasonable.
Sunaina Goraksh, the Company Secretary, pocketed emoluments of Rs. 10.55 lakh in FY 2016-17.
It is notable that the maximum salary payable to Deepak Dhanak under section 198 of the Companies Act, 2013 is Rs. 99.79 lakh (5% of the net profit).
All of this indicates that the Company runs a tight ship and follows a laudable policy of paying frugal salaries to the top brass, which augers well for the prosperity of the shareholders.
Will Multibase India be a beneficiary of the shutdown by China of chemical companies
According to experts, China’s rigorous environmental inspections and subsequent capacity closures are causing waves across chemical supply chains globally and look set to continue through 2018.
It is claimed that the real impact is now being felt across many chemicals value chains around the world as significant capacity closures leave Chinese manufacturers seeking imports from chemical companies elsewhere in Asia and the Middle East as well as Europe and the US.
This proposition was endorsed by Rahul Saraogi, the noted value investor and founder of Atyant Capital.
China chemical closures send ripples around the world https://t.co/Ai63IC4dix
— Rahul Saraogi (@RahulSaraogi) January 13, 2018
What about the surge in crude prices?
SP Tulsian referred to the fact that all products manufactured by Multibase India are derivatives of crude oil.
He, however, opined that crude prices will generally remain soft and not affect the margins of Multibase in an adverse manner.
According to Nick Cunningham, an expert on the oil sector, the rally in crude oil prices is overstretched and supply will soon outstrip demand and result in a crash in crude prices.
This is corroborated by Nirav Sheth of SBICaps Securities. He opined that we are at the peak of oil prices and a correction is expected soon.
“If you look at the recent rally in oil prices over the last six months, it shows that it has traded off the declining global inventory. Usually, this would not have happened had the rigs which is essentially the shale oil rigs would have picked up and you start seeing the response of hired rigs to higher oil prices happening as we move forward. In some sense, we are probably at or near the peak of oil prices,” he said.
Prima facie, it does appear that SP Tulsian’s “new year gift” to us is indeed a potential multibagger if everything goes as per plan!