In an interview to CNBC-TV18's Anuj Singhal and Surabhi Upadhyay, 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: I want your thoughts on CG Power and Industrial Solutions. It had a big rally, but down 14 percent today. Do you think the numbers were this bad to you warrant this kind of fall? At what point does it become a buy again?
A: Two things. Firstly, if you see the Indian operations, I do not think that there is any kind of disappointment on the operational front because if you see on the global front or the global operations, there are a lot many exceptional and losses having booked on the discontinued operations, that is number one.
Number two, the business to business (B2B) operation business deal has already been concluded and that has seen having reflected into the financials. And if you take a call on the debt position, that has considerably reduced, number two.
Number three, if you take a call going forward on the Indian operations looking to the huge opportunities in the transmission and distribution (T&D) space that is seen quite positive. Number our, on the T&D space, where the deal broke where they entered into or they signed an in-principle sheet for divestment, that is getting revived and that is seen into the discontinued operations.
So what is happening that if you see the profitability of the company till operating profit level on a standalone numbers, I do not think that you have any kind of disappointment, but the moment you go below operating profit line and see the consolidated numbers, you have all these confusing losses from the discontinued operations which the companies are looking to monetise.
Apart from that the company recently in their board meeting have concluded to or have decided to monetise the US business operations also. All along they have been looking to monetise the Europe operations and I think once all these things happens, I am not playing on the T&D monetisation business which can fetch them about Rs 700-750 crore because that may take about six months, so I do not think that that is getting factored now.
But if you really ask me for a fall of 13-14 percent, if you see the rise of CG Power in this last one month, it has equally happened much more than that. Probably I do not have the chart in front of me that how far it has moved. But it has given a rise of about 18-20 percent in the last couple of weeks or maybe couple of weeks or maybe maximum last one month. And because of that, many of them are either seen as a technical position having taken or short-term or near-term investors who get impulsive with seeing these kind of numbers.
So, I do not think that one should really get so much perturbed. If you have a conviction, if you have a faith on T&D story and looking to the valuations when compared with the other peers or other peers like GE T&D India. I am not saying that ABB India and Siemens are not comparable, but they can definitely get as a peer comparison with this company. I do not think that these kind of corrections is warranted and probably once these technical factors gets corrected in the next couple of days, you will see the stock recovering again back to, if not that Rs 95-98 levels, at least to the level of about Rs 86-88 or so.
Anuj: The other talking point today. Reliance Communications down 21 percent and you have other Anil Dhirubhai Ambani Group (ADAG) stocks as well down quite a bit. All kind of rumours and buzz in the market, but what is your thought process behind what is happening in some of these ADAG stocks?
A: First focus on Reliance Communications. There are two negatives. First if you see the Q4 numbers, the losses are Rs 1,200 crore. I am referring profit before tax because you should not see the sub-Rs 1,000 crore as the net loss for Q4 because that is the deferred tax credit kind of things which you have seen all these things. So, Rs 1,200 crore losses in Q4 against the profit before tax (PBT) or maybe negative for whole of FY17 at Rs 2,300 crore. If you see that kind of things, generally what happens that whatever spillover or whatever undercover which you have not provided in the first three quarters needs to get booked in Q4. So, this is very severe, number one.
Number two, if you see the statement of the news which has come in, that company has not paid the interest and all that to 10 bankers, actually these kind of financial crisis was seen at the company's level for quite some time. But it is sad that nobody has really discussed that. When you see the suppliers not getting paid, in fact I touched up on this issue maybe about six months back also. So, you see that yes, things are looking very difficult at the company's end. I am not touching on the bond interest payment which company has said that they have paid it on May 24 only, and the bonds then have recovered from 68 to level of about 78-80 or so.
And if you see, market is always worried on taking the aggregate group exposure or the loan positions which runs into Rs 1-1.25 lakh crore. And actually, if you see the Reliance Communications has all the reason to fall by 20 percent or so, but what has happened to the Reliance Infrastructure and Reliance Capital? Why should they fall by 8-9 percent? So that means the group is definitely seen under stress on the financial front. And if you see the situation for last 2-3 years, you are not seeing any kind of significant monetisation. I am referring, you may keep a threshold of Rs 5,000 crore. Have you see any kind of monetisation having taken place? We talk of the multiplexes, monetisation of Rs 400 crore, maybe Paytm 1 percent stake at Rs 300 crore.
So, whatever, and these things goes just in payment of, they are not even capable to make the servicing of the payment also on a monthly basis. So market is very much worried that probably or these financial stress which they are seeing in RCom may get spilled over into the other companies as well because significant monetisation has not happened, though there have all kind of plans having announced by the group and the company.
Surabhi: There is some kind of a bargain hunting that is going on, if you can call it that, on Cipla today. Even on some of the smaller names like Wockhardt for instance, on Divis Laboratories, which is up 6 percent. Is this the right time to be bargain hunting in pharmaceuticals? Would you buy anything?
A: If you have any specific news in respect to each company then only you should go for the pharmaceutical stocks because that the case of Wockhardt. Again I am not trying to say that this is news, these are just rumours going on that probably company will be having some kind of news coming in for their Shendra facility from US Food and Drug Administration (FDA) and I do not know how far that is to be believed because we must have received this US FDA for the many of their plants, whether you talk of Waluj or you talk of Shendra, in this last six months so many times. So, it is difficult to take a call, number one.
Number two, you do see sometimes these kind of value buying seen coming in after having taken such a beating which we have seen today in Divis Lab also. But on a broader scale because looking to the situation prevailing on the US FDA front and even on the domestic front, the kind of curbing of the branded drugs and all that, I will not be courageous to take a call on this larger pharma stocks though one can look to buy the smaller pharma stocks which are either in the smallcap or in the midcap category.
Anuj: Power Finance Corporation has moved to the low point of the day. We are expecting numbers there, but what is the call on the stock now?
A: After having seen such a big run up, if you really see all the financial stocks are seeing the profit booking whether we talk of the banks or even the PFC kind of stocks. So, it is better probably market is thinking that it is advisable to be cautious ahead of the numbers because same thing has happened in case of PTC India also though the numbers have come quite good. But the stock has corrected ahead of numbers from Rs 104 to Rs 94 in this last couple of weeks. So probably profit booking is the only issue which is seen existing for PFC otherwise I do not see any fundamental reason for the stock to correct.
Surabhi: The culprits are still the same names. Now, CG Power is down 16 percent. Stocks like Jaiprakash Associates down 13-14 percent and I can take a lot of names – Reliance Infrastructure, lots of names moving on the downside. Is there anything in this midcap correction where you have seen a hint of quality where you think a purchase might make sense at these levels?
A: You need to allow at least a couple of days for these culprits to turn the holy stocks and all that, because the traders are, sometimes you have the stubborn traders as well who thinks that probably will roll over and maybe pay the mark to market margin for the day and look to tomorrow also. So on a fundamental basis, as an investor you cannot catch the bottom and you cannot catch the top for booking the profits. As I said, for CG Power, I do not see any reason that why the stock is now ruling maybe sub-Rs 79, but I do not see any reason why I do not find any value in the stock at Rs 80 level also.
So, naturally, it is a buy for an investor, but difficult to say but I do not think this pain can really last beyond tomorrow. From day after tomorrow, I do not say that the stock will bounce back, but at least the weakness in the stocks will stop and that is what we have been seeing happening in majority of the stocks. You see the asset reaction coming in, in those stocks whenever we see these kind of numbers, but if it is in Futures and Options, then probably that gets little enlarged or maybe gets enlarged for a few more days.
But if it would have been in cash segment, in fact there are many, I can give you 30-40 stocks which have really seen the disappointment post Q4 numbers in the cash segment but again have bounced back and settled in a day only. So, maybe CG Power will take a couple of days, but as an investor, I will definitely give a buy call on the stock right now at sub-Rs 80 level of maybe sub-Rs 79 level.
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