SP Tulsian of sptulsian.com, explains why he thinks JSW Energy, despite poor numbers, may quickly see an improvement. He also tells why he is bullish on JM Financial.
Below is the transcript of SP Tulsian’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Anuj: Any initial thoughts on JSW Energy? These numbers on the face of it do not look good.
A: That is right. On the face of it, the numbers do not look good, but I think that probably this will be one off and we will be seeing a good improvement in the performance of the company as such. And if you take the call on the power generation companies, they have started doing well. So, these are just historical data which I may not be able to, but still one has to analyse and understand. But they are disappointing as of now.
Sonia: Wanted to ask you your view on United Spirits after the numbers as well as the fact that Diageo will be coming out with its own earnings on January 26 and there is expectation that something about the open offer could be mentioned. Would you be bullish on this stock as of now?
A: Numbers are definitely looking better because actually I would say that probably this stagnation which we have seen in the financial performance seems to be breaking maybe because of the better product management with the premium brands coming in. But if you really take a call on the valuations, still I am not convinced because this I have mentioned a while back earlier also that the preferential issue to be made by the Diageo is not seen to be so convincing because if you go by the shareholding pattern with foreign institutional investors (FII) holding closer to about 24 percent with 56-57 percent with Diageo and about 5-6 percent or 7 percent with Vijay Mallya and United Spirits benefit trust, where is the float which they will all be looking for because I do not know whether FIIs will really be tendering the shares because in the earlier buy back also, two buy backs which had happened, FIIs did not reduce the stake to a great extent.
I do not know whether the prices will be so attractive that can rerate the stock or allow it to move up because the stock has already risen by about Rs 300-400 in this last couple of weeks on the expectation of Diageo increasing their stake. So I will not be taking a call because fundamentals of the company purely on the breweries front with the highway ban, sale of liquor on the highways and a few states going quite aggressive in the liquor ban are not seen quite positive for the stock going forward.
Anuj: AksharChem (India), it has just announced to the board that they will be investing some money in expansion. I remember this is one of your favourite stocks. Any thoughts on this at current levels?
A: They have said that they will be investing Rs 175 crore in the next 12-18 months. And because they have not said specifically, they have just said dye and dye intermediates, because if you see the vinyl sulphone market, that has been quite steady. If you see the AksharChem numbers, Q2 and Q3 are identical, exactly the same whether you take in terms of topline, whether you take in terms of operating profit, whether you take in terms of profit after tax (PAT) or maybe earnings per share (EPS) of closer to about Rs 24-25 for each quarter. So, yes, the things are because situation has not improved on the Chinese front and the kind of exports which is continuing, price increase has not been seen. But even if they have been able to maintain the kind of profitability and vinyl sulpone there are four players which I have said if you all recall the last March 30, when the exports had started, since then all these four stocks have risen by about 500 percent to 900 percent, that is AksharChem, Bhageria Industries, Bodal Chemicals and Kiri Industries.
But AksharChem and Bhageria Industries seems to be the best amongst the lot because both the stocks, Bodal and Kiri Industries, they have some pollution issues in respect to a couple of plants. So, I will not be taking a too positive call on them, but yes, overall the things are looking stagnant. And maybe one can expect the Q3 numbers of other three companies also to be on similar lines what we have seen from AksharChem which are really good because on a year-on-year comparison, you will call it as a blast. But I will be taking it on a sequential basis and where I have said that it is exactly same, not even a single percentage of increase on the topline or bottomline has been seen but still they are very good. So, maybe nine months EPS of Rs 61 having posted by AksharChem, one can expect an EPS of closer to about Rs 80-85. So, allocating Rs 150-175 crore for capital expenditure (Capex) makes this justified move considering the profitability.
Anuj: Looking at UltraTech Cement's numbers, any thoughts on whether this rally in cement stocks will continue?
A: Looking at the Q3 numbers and correlate it with demonetisation and if you can expect these kind of results from UltraTech Cement for Q3 then Q4 and Q1 will be beyond imagination and going forward the kind of focus which is now set on infrastructure and if you see the road construction, we have been very apprehensive that the cement consumption will go down in the housing sector which constitutes about 22-23 percent of the total cement consumption but the kind of infra growth, which we have been seeing whether cement is getting consumed and in the next six months the kind of consumption growth to be seen in construction and infrastructure sector and just 2 percent quantity degrowth in Q3 in spite of so much fear, the dealers having said that things are not looking good and all sort of things plus the cost control maybe the cost control having carried out by the company on logistic cost and the energy, power and fuel costs are phenomenal. So I have been keeping positive view on cement stock prior to this results as well but my view get reinforced and I am keeping highly positive view on the cement sector or cement stocks going ahead.
Anuj: Your views on BEML because the big bet that the market is taking on is the strategic stake sale, the government has 54 percent. Do you get a sense that this could be the next big one from the government stable and the investors can make money here?
A: That seems a bold move by the government, in fact they have said that they are looking at divest 26 percent in favour of strategic investor out of 54 percent. They have been categorical that there won't be any preferential issue and all sort of things. So if government is prepared to reduce their stake to 28 percent with 26 percent to be given by the government out of their quota to a strategic investor, it will be termed as a joint venture company. However, we have seen few fortunes of joint venture companies having changed substantially; the case in point in Hindustan Zinc which has also happened during the earlier days of UPA. I am not saying that the same kind of things can happen but take the case of other companies also like Tata Communications where things have happened in similar way where government has retained 26 percent and they have been now considering to exit the residual stake in Hindustan Zinc for as high as Rs 32,000 crore and the original 48 percent stake exited at Rs 3,000 crore. So this is a very thought out strategy of the government that this will go a long way.
However, for last one week or couple of weeks we have just seen the profit booking because the stock has run up so much and then the traders and the weak hands exited but if one wants to keep a fundamental view on the stock, this news is extremely positive.
Anuj: Is JM Financial a stock that you track? Of course, you will not have too many details of the numbers but fundamentally, do you track this stock?
A: In fact, the stock looks good, but if you see the broking cum non-banking finance company (NBFC) space like India, IIFL Holdings, Edelweiss, JM Financial, even this stock has started participating in the rally. So, considering the results, as it seems, I do not think results are going to be seen disappointing and will get liked by the market and the stock looks good at the current price.
Sonia: From the broader markets, very interesting numbers tomorrow. There is Bharat Financial, there is Crompton Consumer, there is Wockhardt, a stock that you track closely. Anything from the midcap list that you would be looking forward to in terms of good numbers this time?
A: 4-5 numbers which come to my mind, one is Nilkamal because if you see the kind of run up, again the consumer space, demonetisation will directly get reflected into the plastic furniture business, so that is one. Mahindra and Mahindra Finance again, provisions, what provisions they make on the lines of Ujjivan Financial has to be seen. Then I will be keeping an eye on Bharat Bijlee because the transformer space is doing very well and Bharat Bijlee is likely to perform better because we have seen a good run up in all the transformer stock makers. So, that looks very good. Again the odd stocks, since you have asked me, the not so known stocks, Gandhi Special Tubes, again an auto ancillary company, that will also be seen quite good. And amongst the larger one, I will be keeping an eye on TVS Motors apart from Wockhardt. Obviously, you have the larger numbers like Biocon, Bharat Financial, Bharti Airtel, HCL Tech, but I will be keeping an eye on TVS Motors because what kind of performance we will see from them.