State-owned Bank of Baroda's net profit dropped nearly 22 percent year-on-year to Rs 1,012 crore for the quarter ending December 31, 2012, dented by higher provisions against bad loans. SP Tulsian is bullish on the bank and recommends entering into the stock with a positional view. In an interview to CNBC-TV18, Tulsian says, "If you put a stop loss of 2 percent it may get triggered maybe in this week, but if you keep a positional view again in the series, I am expecting price to move back to Rs 860 because overall quality and the business of the bank remains quite robust."
Below is an edited transcript of Tulsian's interview on CNBC-TV18
Q: What are your thoughts on BOB numbers? How should an investor approach the stock now after the 7.5 percent correction?
A: Definitely, disappointing number. If you see the asset quality and the overall parameters, provisions and all are looking quite dull. However, BOB swiftly moves up. Once it gets corrected maybe to the extent of 7-9 percent, then people start taking a negative call on a secular basis that maybe it will remain weak going ahead. Since, I am keeping my positive view on Bank Nifty when the series had started, I had given a target of Rs 13400-13500 and I maintain that same target is likely to be seen in this series.
BOB being the frontliner bank, has a very good trading up move whenever the stock gets corrected it swiftly goes up in the similar fashion. In case of Punjab National Bank (PNB) ahead of the poor numbers the stock corrected but on the day of the good numbers the stock moved back by 7-8 percent.
I agree that the results in case of BOB have been very poor, but I don't see a downside beyond 3 percent from hereon. Maybe one can take a level of Rs 775-780 that will look a contrarian call to take long positions at those levels but I will be recommending. Even the brave traders can look to enter now at about Rs 800, but with a positional view. I don’t think that the stop loss strategy can work in this.
If you put a stop loss of 2 percent it may get triggered maybe in this week, but if you keep a positional view again in the series, I am expecting price to move back to Rs 860 because overall quality and the business of the bank remains quite robust.
Q: There is a stake sale buzz again in IFCI and that is the reason why the stock has moved up quite a bit today. In the past, we heard comments from the government where they indicated that they are not willing to pair down their stake. How would you approach all of this contradictory news flow?
A: I have maintained my view that this stake sale is not possible at all. Now the government is holding 56 percent stake after they converted their 523 crore and 400 crore, that is in all 923 crore convertible debentures and optionally convertible debenture, they have acquired a stake of close to 56 percent.
In the second term of UPA, it was decided that the government will not be divesting their stake in any of the PSUs below 51 percent. That means they have to keep a stake of at least 51 percent. I am unable to understand that can you put an exception in case of IFCI that you have acquired the stake during the year and now you want to get rid off. This is because once government having acquired the stake in IFCI to the extent of 56 percent, it has become a government company and now they are governed on the floor of the parliament.
In the presidential address it was given that 51 percent stake will be kept by the government in all the companies and I am going by the same premise. Secondly, there has been no business model, except for the real estate assets in the books of the company, like commercial space of about 4-4.5 lakh square feet, 3 lakh square feet of IFCI tower and the residential. I don’t think it will be attracting anyone.
Even the credentials and the past track record of the company will not give any privilege or the opportunity to the prospective buyer to go for the banking licence. So, taking all this into account, those who are holding the trading positions in the stock that seem to be held by quite strong hands, they are in fact making this news to come on and off, but this stake sale or may be inducting a strategic investor in the company is totally ruled out. This has to remain a government company with 51 percent stake to be held by the government.
Q: How would you approach Jubilant Foodworks which is down about 4.5 percent, another quarter when the same store sales have moderated, infact, has come from 30 percent now to about 16 percent growth this quarter? Given the valuations are expensive how would you look at this stock?
A: I have always been keeping a negative stance on the stock that it is grossly over valued but the market has always been taking a call that maybe 12 months or maybe next 12-24 months should work. If I just confine to the FY13, having nine months results out by the company EPS for FY13 is likely to be at 24 and on the historic multiple it is ruling at a PE multiple of 50 times. Can you justify this kind of, I wont subscribe and I wont be attributing that PE multiple.
Like for Tata Global, even they are going ahead with the Starbucks coffee joint venture 50-50 and that may also start giving them good profits and that is now ruling at a 23-24 PE multiple. So, again on a comparable basis on FY13 even if you take a growth of about 33-35 percent, even if you seek the sequential they have been posting 13-14 percent growth.
If you take a 50 percent growth for FY14 with an expected EPS of close to 36-38, still the share will be quite expensive at a PE multiple of 32-33. Beyond that you cannot give the valuation, so maybe once the stock corrects below Rs 1100, that gives a very good trading opportunity and again it moves back to Rs 1200-1250 where one can exit. So, the share is likely to be ruled in a range of Rs 1100-1250 maybe for next couple of months or so.
Q: Second day in a row Bharat Heavy Electricals Limited (BHEL) is falling and Goldman Sachs has about Rs 200 target price on the stock, where do you think the stock will stabilise at?
A: Last time it corrected to about Rs 200-205, it is a good buy because I don't think that stock can fall below that. I agree that the Q3 numbers have been quite dull and poor, but Q4 is very critical for the company. Even if you see the bad numbers, broadly it has been getting factored into the price and now the share is virtually ruling closer to single digit or sub 10 price to earnings (PE) multiple.
Once it corrects to about Rs 210, target of Rs 200 is possible may be in next couple of months, but whenever it touches to the level of Rs 210, I will again advice to initiate a buy call. This is because last time also when the share fell to Rs 205-210 then, thereafter, it moved to Rs 265-270 in the next two, three months only. At that time the situation was same, sell call from all the top brokerage houses, investment bankers.
I am not writing off this company because the investment cycle is quite poor in the country. You don't have the new orders coming in and that is a real problem for the company. I don’t think that on the pending order front, there are any concerns. They have one lakh thirty thousand crore orders, but the fresh orders are not coming in, so that broadly seems to have reflected into the price.
Q: Why are Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), both up about 3-4 percent and what are you expecting from REC results today?
A: PFC has posted good numbers and I don't think the margin has shrunk. Inspite of increase in the QoQ topline, the bottomline is virtually flat. But, if you see both the companies the way the electricity prices are being raised across the country 20 percent increase we have seen last year, 20 percent increase is now going to be seen and government seems to be determined because this seems to be the headache of all the state electricity board that discoms have all to be brought on the track by the state governments and they won't be able to dump that on the center.
Now the power is becoming a big issue for all the state governments to comeback into the power. So, the power reforms are seen as a big trigger and we have not seen any asset deterioration in the PFC numbers as well. Both have the loan book of Rs 1 lakh crore and above. The earnings per share (EPS) of Rs 30-35 for both the companies, stock seems to have bottomed out but we see the up moves that are not sustained. Maybe the stocks are more or less moving in a range.
If PFC moves to about Rs 220-222, one may again see the profit booking coming in and making it fall to about Rs 205. So, it is moving in a very narrow range of less than 10 percent and that is the more for the traders to take a call as a trader. I won't be expecting it to be a great stock for the investors to take a call at this stage.
Q: What do you think about the February series and how should traders approach it now? What would the base for the market look like ballpark?
A: I have taken a positive call. When the series started, I was looking for a level of about 6200-6250 on Nifty Futures and may be on the Bank Nifty at about 13400 or so because the Budget expectations will all start may be 15 days ahead of the Budget. In fact the Budget theme or the expectations have not started catching up in the market and two, three crucial factors which people will start taking a look is fiscal deficit, may be no increase in the direct taxes whether on the individuals and corporates, that will start building up the hopes for the good Budget.
The kind of commitment and the suo moto indications which have been given by the finance minister, instills confidence otherwise there is no compulsion on him to give all type of assurances that the fiscal deficit will be curtailed. You have the divestment programme in front of you Rs 30000 crore is not going to be met. Next year will be a big challenge in front of them and since they are going ahead with the Budget, a lot of things will be done by the government on that front.
Overall, I am keeping my positive stance. This weakness, may be because January has not been very comfortable people have at the fag end, last three, four days have been tiring. So, they have not created very good positions, in fact I also see this as a trap. The weakness continuing, we have seen weakness on Friday, we have seen weakness today, if we see the weakness tomorrow also, people will start taking a negative call or may be a bearish view on the market for whole of the series.
The series is expiring on February 28, on the day of Budget, so, that will be very crucial. Last four days are going to be quite volatile. Taking all this into consideration and keeping my positive stance, may be stocks like Opto Circuit or one can single out where the bearish view can be taken, where the corporate governance has taken a hit, but I will be keeping my positive stance on the market with positive view on the oil and gas sector, cement sector and banking finance.
Q: What did you make of the move on CEBBCO, 40 percent slide in two days, is there any thing that you have picked up on that name and would you buy the stock at all at lower levels?
A: I don't think that there has been any kind of disappointment on the working of the company. They have posted earnings per share (EPS) of Rs 2.50 which was Rs 3 in Q2 and Rs 2 in Q1. The problem is not in respect of the pledged shares by the promoters. The stock has seen huge run up and that happens out of the promoter category. In fact the informed circles close to the promoters only indulge into the stock.
We see lot of pledge having taken place. If not pledge, may be the financing having taken place and if you see the shareholding pattern also, like one of the companies Sunidhi Capital who is holding close to two percent stake in the company they may not be the beneficial owner and some kind of back to back arrangements have happened with the promoters or may be the informed circle close to the management. However, the kind of sell that we have seen today, about 20 lakh and more on both the exchanges, 22 lakh on NSE and 22 lakh on BSE probably major portion of that will get market for the delivery.
As high as 85-90 percent and that should in fact ease the pressure on the margin call because may be the problem must have got flushed out with today because yesterday we did not see much volume happening on both the exchanges in the stock. So, may be the stock seems to be nearing its bottom. Rs 10 EPS, if you estimate and if you expect the share to settle at about Rs 40-45, that gives a value. This is just the pain of the non-promoter category financing which has happened and that should get eased out may be in next couple of days.