In an interview to CNBC-TV18's Anuj Singhal and Varinder Bansal, SP Tulsian of sptulsian.com shared his views and outlook on the fundamentals of the market and specific stocks.
Below is the verbatim transcript of the interview.
Anuj: Thoughts on Hindustan Petroleum Corporation (HPCL) first? You have been bullish on oil marketing company stocks.
A: I have been keeping my bullish stance on oil marketing companies and more specially on HPCL. And in fact if you see in this last one month, the kind of pessimism which was built by the experts and all that that company is getting acquired by Oil and Natural Gas Corporation (ONGC) and that will be seen negative, if you all recall at that time, I have said that I do not understand that how the metrics for HPCL will really be changing because HPCL will continue to remain as an independent company and maybe the status will change of the shareholding of 51 percent being held by government of India, instead of that will be held by ONGC and it will remain a subsidiary company of ONGC.
So I continue to have a positive bias on the oil marketing company and going forward, in fact if you see, maybe the dynamic pricing which we have seen having implemented by the oil marketing companies, that is seen proven to be beneficial, maybe marginal for all the oil marketing companies.
So the kind of transparency, the kind of valuations which we have been seeing of all three oil marketing companies with share ruling at a single digit price-earnings ratio (P/E). And amongst all three, if you take a valuation call considering the outlets also closer to 15,000 of HPCL, 15,000 of Bharat Petroleum Corporation (BPCL), about 28,000 of Indian Oil Corporation (IOC), amongst all of them, you find HPCL as the cheapest stock with a market cap of closer to about Rs 50,000 crore against market cap of BPCL at about Rs 1 lakh crore.
So on valuation parameter, on earning parameter, on going forward visibility and even the corporate developments, from all these angles the HPCL is looking good. Maybe the share has gone ex-bonus and because of that, again the trading interest may be seen coming back at the lower level at Rs 353-355. But purely on fundamentals and on a valuation metrics, I always held HPCL as the best buy amongst all three in spite of having positive view on all three oil marketing companies.
Varinder: What is your view on Mangalore Refinery and Petrochemicals (MRPL) in this case, in this entire three-way merger?
A: Again if you take a call on MRPL, 88-89 percent stake is held as a promoter stake. And obviously, that promoter stake has to come down. Not any corporate move has seen having taken place. 70-71 percent is held by ONGC. So even if continued to remain as a standalone and if you see the MRPL valuation, again at Rs 23,000-24,000 crore market cap, I agree that still the share is looking good.
So maybe as a, it is difficult to say whether it will get merged with HPCL or not, because it does not make any difference. Even if it gets merged with HPCL, the major portion of that will flow to ONGC because obviously as I said that 71 percent is held by ONGC so proportionately, those number of shares will get issued to ONGC and maybe the share of 17-18 percent held by HPCL in MRPL will get extinguished.
So maybe once you have this merger which seems logical because when there is a consolidation move by the government which is rightly so that merge all the refineries along with the oil marketing companies because that is the right synergy, why you have a standalone Chennai Petro, maybe MRPL, maybe in Chennai Petro because the Iranian partner is there again holding some 17-18 percent stake.
So probably that will be a difficult call. But at least one can go ahead, the ministry can go ahead with merger of MRPL with HPCL. So in that event, eventually, if that merger happens, as I said that 17-18 percent of HPCL stake held in MRPL can get extinguished. Balance shares which will get issued to the ONGC.
So effectively, ONGC may land up holding maybe about 60-65 percent stake in HPCL because if you take a call on the valuations, HPCL market cap Rs 50,000 crore, MRPL market cap, Rs 22,000-23,000 crore and generally, whenever we have seen this merger happening, they are more seen having happened on the market price.
So effectively, in this whole equation the effective ownership of ONGC will increase in HPCL to the extent of 65-70 percent which will be seen a logical move instead of continuing with MRPL as a standalone entity. So yes, all the logic to merge MRPL with HPCL because there is no other space or other company where it can really get merged.
Anuj: I wanted your thoughts on the way Biocon has moved 14 percent higher. Is it getting over extended or do you think it is a good buy?
A: Actually, the stock having gone ex-bonus, a couple of months back with 200 percent bonus, since then the stock seemed to be in the good grip of the value investors and probably that is the reason that we are seeing momentum. I am not denying on the fundamentals because yesterday or day before, we had a negative news, in spite of that share did not correct.
But if you take the situation now going forward, unless and until we see the monetisation seen happening from all these new drugs, it is not advisable to take a further upside on the stock from here on going forward.
Anuj: One of our viewers wants to invest Rs 1 lakh for up to one year. What are your views?
A: Under the SEBI rules also and as an investment strategy also, you must know the risk profile of any investors. And failing that, it will be very difficult whether the kind of temperament, whether they have the way, the risk profile our customers on our site, giving them conservative growth and balanced profile. So it is very difficult for to advise.
But still if I just want to make a wild advice to her, I can only say that auto ancillaries are really looking a good space to be in and the stock which I have recommended in the morning, that is GNA Axles, though it is 6-7 percent up today, still it looks a good buy. Second because I do not advise entire amount to be invested in one stock and second could be Century Textiles at the current level. Or if she wants to go for the lower priced stocks, then the second could be maybe stocks like Rico Auto again in the auto ancillary space. So both these stocks can be chosen, can be picked up by her for making investments of Rs 1 lakh.
Anuj: I wanted your thoughts on one of your favourite stocks. PTC India, if I am not wrong, we were discussing this on Closing Bell about 2-3 months back when we discussed this entire space. Rs 111 now on the stock. How should investors approach this stock from here and can we expect similar move in other stocks like Rural Electrification Corporation (REC) or Power Finance Corporation (PFC)?
A: Actually, PTC India story is yet to unfold. In fact if you take a call, maybe if I just go quickly on the recap or revisit the reasonings which are given at that point of time, holding company of PTC India financial services, consolidated earnings per share (EPS) of Rs 15, book value of 130 and the way the situation is improving on the power availability front with the DISCOM health improving, PTC India has tremendous potential, number one.
Number two, I do not think there is any point in comparing because PTC can be treated more as an exchange and indeed it is a power exchange and one can start giving the valuation, the multiples which we give to the BSE or maybe the stocks like MCX and all sort of things, because REC and PFC are purely the financiers of the power, but this company, if you take a call, though they have a book of about maybe Rs 10,000-12,000 crore largely for working capital, their fixed assets are less than Rs 100 crore.So you can imagine the kind of power they have by way of this power trading consumption going to go up, availability, better financials or better backing for the receivables and all sort of things. So we continue to have a positive bias with one year view on PTC India. So I will not be comparing PTC India strictly with REC, PFC because both are in a different league. But extremely positive view on PTC India, even from the current level going forward.