SP Tulsian of sptulsian.com, in an interview to CNBC-TV18 gave his views on the cement sector and why he is upbeat on some stocks including companies like Sagar Cement, Kakatiya Cements, Kesoram Industries etc. He also expressed his positive view on other sectors like real estate sector covering companies like HDIL and DLF and cautious approach on companies in the metals space like Hindalco. He also spoke on Kiri Industries.
Below is the verbatim transcript of SP Tulsian’s interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Anuj: You were pretty early in this cement game. You had recommended some of these stocks, 20-30 percent lower than what they are right now. However, in particular, thoughts on the way Sagar Cement has run up today, Kakatiya Cements has run up today and any of the stocks that you still like at these levels?
A: If you really want to go by the Sagar Cement which I have discussed in the morning also, the kind of growth, in fact growth is the key. If you see, let us not take month-on-month growth of 37 percent which we have seen on a consolidated basis for Sagar Cement for this month. Take the growth of 56 percent on quarter-on-quarter (QoQ), I am referring Q4 over Q3 of FY16, it is a growth of 56 percent and that is going to be posted.
In fact if you see the South based companies, they have all had a terrible Q3 numbers maybe because of the lower off take, I don’t know the specific reason for that and maybe because of the slight shrinkage in the prices as against the Q2 numbers which was see. Maybe monsoon could be one of the factor but I don’t think that Chennai flood could be one of the factor but I don’t know that what was the specific reason because we have seen the Chennai flood hitting the region in the last week of October and lasted till middle of November or maybe end of November, for about a month or so. So, that could be one of the reasons.
However, I am expecting excellent numbers to be seen from all these companies. We have all been taking a call on the well researched stocks like UltraTech Cement and all that but if you go from the Southern reason, let us take region wise, you have four or five stocks available still very cheap. Sagar Cement is one of them as its 20 percent upper circuit so I won’t be taking a call on that though on an EV basis, it still looks quite cheap. However, take the case of Deccan Cements, take the case of Panyam Cements, take the case of Kriti Industries, take the case of Kakatiya Cements, take the case of NCL Industries, they all have their presence in the Southern belt and more specially in Andhra Pradesh and Tamil Nadu. I am expecting all these companies to post excellent numbers.
Come on the Western region, you have Saurashtra Cement, you have Gujarat Sidhee Cement – again a group company, Prakash Diwan has touched upon the Sanghi Industries, apart from that, maybe Heidelberg Cement again looks a very good stock, Kesoram Industries which I have been recommending since it was ruling at Rs 80-82. Century which has a capacity of 30 million tonne and awaiting for many of the corporate moves so I think there are many players which are available now in the market at a EV of anywhere between USD 40-60. If you take a call, if you just keep your focus centering only on UltraTech that is seen an expensive stock, it may be EPS decretive move will be seen till FY18 till they integrate the Jaypee operations also into the company.
I am not saying that I am against UltraTech but I am saying a lot of value is seen into the – you have almost 25-30 cement stocks available of which I have already given you name of 10 companies. So, look for those ideas which can still give you an upside of maybe 20-25 percent in next couple of months or so.
Anuj: The other remarkable stock has been Kiri Industries; in fact it has been the stock of the month, up 72 percent in this month. You recommended this stock at Rs 90 and it has gone up to Rs 180. It has doubled in a matter of 10 days. Fundamentally, can someone still buy this?
A: You are right, on March 30 when the stock we recommended this stock. I recommended the stock at Rs 90, now it is Rs 190 and that too maybe in a matter of about seven or eight trading days. Let us go on the fundamentals. The company is holding 37 percent stake in DyStar. DyStar is the world leader in the dyes and pigments and if you really see their black and their blue, the two dyes which they are supplying mainly 30 percent of their black goes to Turkey and they realise maybe about 5 percent extra, that is their business model, 37 percent stake held in that company.
I am expecting that FY17 will see a profit of closer to about Rs 300 crore that is 37 percent share I am talking that means DyStar will be having a profit after tax of closer to about Rs 900 crore since Kiri is holding about 37 percent stake in that company, they will be having a profit of anywhere between Rs 280-300 crore into the consolidated results, number one.
Number two, if you see the FY16, they will be having the company will be having an interest liability of closer to about Rs 80 crore. Already the company has informed the exchanges that they have redeemed the or the debt has been reduced from Rs 850 crore to Rs 400 crore and this Rs 400 crore will further get reduced to about Rs 150 crore maybe sooner or later, maybe in next three to six months. So, standalone numbers, will be seeing the reduction in their interest liability by about Rs 60 crore on an annualised basis.
The company has an equity base of closer to about Rs 30 crore and apart from that, they have one more joint venture company in which the company is holding 40 percent. Again the world leader, the residual stake is held by that company in DyStar. So again the products which are manufactured by the company, mainly of the dye intermediate, the theme which we have played is increased in the prices of H-acid from Rs 350 per kilogram to Rs 1,100 per kilogram, Vinyl Sulphone prices have increased from Rs 200 to Rs 300 per kilogram and this company is a leader in making all these products and they directly supply to their joint venture partner in Europe or maybe in the other Asian countries and all that where they fetch a very good realisation.
So, maybe Rs 280 crore from the joint venture, both DyStar and that second company which I have refereed to, 37 percent and 40 percent, and if you take the standalone profitability, I am referring FY17, the company may be able to post a PAT of closer to about Rs 80-90 crore. That means if you look for a Rs 350-360 crore on an equity base of about Rs 30 crore because promoters will be converting some warrant today, equity will rise to about Rs 30 crore that means Rs 120 EPS is likely to be seen for FY17 and share is ruling at Rs 190.
So, one can take a call that still when I recommended the stock, the theme was increase in H-acid price but at that time also the share was ruling at a PE multiple of less than 1 or maybe closer to 1. Still the share is ruling at a PE multiple of 1.5 to less than 2 times and I am in fact quite bullish, I won’t be surprised to see further growth, there is no point in giving the target, the only time horizon can be given that hold till December 2016 to see fabulous returns still from here on.
Anuj: I wanted to toss the real estate question also to you. What have you made of the kind of surge that we have seen in a lot of these stocks. Of course, DLF stands out, but even others like HDIL have seen quite a bit of rally.
A: Actually the talks which are going on more in respect to the Mumbai circle, because if you really go by the transfer of development rights (TDR), TDR is now available only in the Mumbai suburb. Let me explain that. You cannot use that TDR of Santacruz in Mumbai Central or in Tardeo. That means beyond Sion and beyond Bandra only, you can use that TDR.
But now, Mumbai Municipal Corporation is contemplating this is just an inside expectation that they will allow the TDR of even Borivali can be used at Colaba. Obviously, it is based on the ready reckoner rate. Suppose just to give an example, if the ready reckoner rate of the land for Borivali is at Rs 5,000 per sq ft and if in Colaba it is Rs 25,000 per sq ft, then your Rs 5,000 sq ft of TDR will entitle you to construct 1,000 sq ft in Colaba. So, that is going to be a very big positive. And in fact, you are going to see a lot of this TDR being bought by the Mumbai city developer. That means from Colaba to Dadar or Matunga or Sion. That is going to be a big booster. And if you go by the two themes, that is HDIL an DB Realty, they are the largest TDR holder.
And actually I am keeping an eye on the GVK Power also. Though the dispute with HDIL is going on in respect to the redevelopment, because GVK Power will be re-housing 70,000-80,000 tenants which are existing on the airport land. And they will be able to monetise the 95 acres of land. And actually I had that talk with one or two close source people and they said that this is likely to happen very soon. And actually, I feel that if it comes through, then it will just be a game changer. Even the real estate prices will start increasing and there will be a lot of demand for TDR which will be coming in which will be coming in which eventually will get utilised in the central Mumbai.
So, that is the theme. So, keep Mumbai based real estate stocks, those who are holding larger TDR with them.
Sonia: I wanted to take your views on two metal names, one Hindalco because that was a stock that Sakthi Siva of Credit Suisse is very bullish on. So do you have that same view and the other one on Jindal Steel and Power (JSPL) on the back of the court ruling in favour of JSPL and the Sarda mining case? How much of a further upside do you see now?
A: I don’t have positive view on both. Let me just quickly explain the Hindalco. If you see the kind of prices prevailing for aluminium, I don’t think that there is any kind of respite number one. Novelis, again there has been talk that company is looking to refinance the debt of closer to about USD 4 billion. That means this company which was acquired by Aditya Birla Group in 2007, when Corus was acquired by Tata Steel for about USD 6 billion still has not shown the remarkable growth, number two.
Number three, if you see the Rs 40,000 crore investment of Hindalco lying ideal in Odisha is not yielding any result; again that is a very bug hangover on the stock. Lastly, if you see the debt of closer to Rs 80,000-84,000 crore, I don’t understand that what is the sanity of taking a call on Hindalco that too after having seen such a big run up. Maybe at a level of about Rs 65-70 probably I would have said that the stock looks good but not at the current level of Rs 84-85 or maybe Rs 87.
Coming on JSPL, this is just one news of sourcing the raw material at a cheaper price. Now, let us understand that Sarda mines is separately owned by different entity, they will also be having their own profitability. Even if you presume that they have a contract, I don’t think that now iron ore seen as a premium product. So, the cost of production maybe seen lower by about couple of percentage but that is not the relief people are looking from, from JSPL. The area of concerns are more in respect to the asset monetisation and debt reduction of Rs 45,000 crore. On that front, nothing is seen happening because we have been hearing selling of 1,000 megawatt power plant to JSW Energy Group and that has been in the news for last couple of weeks but nothing has happened.
So, I think both are minor news and maybe Credit Suisse having taken a positive call on Hindalco, that is their way of looking at it but I will be in fact I find Hindalco as the weakest company in the AB Birla Group because if you really take a call on any other stock, they are all doing quite well but this is the only stock where I have my cautious and in fact I would say that avoid view on Hindalco.