In an interview with CNBC-TV18, SP Tulsian of sptulsian.com spells out why he is extremely positive on Grasim Industries owing to its viscose staple fibres (VSF) business doing very well and its merger with Aditya Birla Nuvo.
Below is the transcript of SP Tulsian's interview to Sonia Shenoy and Prashant Nair on CNBC-TV18.
Sonia: The stock of the moment is Escorts. It is just racing ahead right now. This is one stock, ever since they sold off their loss making auto ancillary business, this stock has been on fire. Is it too late to jump in now at Rs 400 or is there still scope here?
A: Firstly, I do not think that you can really justify or give any kind of reasoning for this sudden surge which we are seeing in the stock price, number one. Number two, this has been a high-beta stock which is showing good kind of volatility on the sides, it goes up swiftly and also corrects down at the lower level also. So maybe at the Rs 400 level, purely if you go by the fundamental call, I do not think this justifies a buy. Yes, it has a range.
Maybe at a price of about Rs 350-360 where it comes to those levels also, that could be a good entry point, because if you see, the stock is seen having made a range of anywhere between Rs 350 to Rs 430-440. So it will be risky to buy now or plunge into the stock at the current level. Wait for it because there are no other fundamental reasons for the stocks to move up. Maybe the momentum has seen some informed buying or buying for the strong hands must have come which is making the stocks to move up.
Prashant: How is the market itself, especially the midcap and small cap part of the market looking to you? Any reasons to worry at an aggregate level at all?
A: If you take a call on the midcap and small cap, the kind of run we have seen, the kind of gains which we have seen having given by those stocks. In fact, this I have been saying for the last 4-6 months, the gain has been anywhere between 50 percent to 500 percent if I take from the previous Budget to this Budget with a duration of about 11 months. If you take the 50 percent to 500 percent or I would not be agitated in saying 800 percent returns. So, sometimes if we try to generalise any stock that all midcap and small cap falls in the same category that will be wrong. Just to give an example of the sugar stocks, they have all been correcting for the last 15 days maybe on the news flow of the imports or maybe the results having come out or the stocks having peaked out.
So you are going to see some kind of profit booking coming in but I am not giving up my call on the midcap and small cap because if you really want to make money, probably that is where the ideas lie, maybe in this midcap and small cap. It is only the pricing. A while back, Sonia just now talked about Escorts, you just cannot ride the momentum. Suppose for example, if I buy at Rs 400-410, I may get trapped if I do not have the medium-term view. So I am keeping my positive stance on the midcap and small cap.
This is just a profit booking phase which we are seeing maybe partly because of the dull Q3 numbers which we have seen or maybe because of the stocks seen having peaked out because there are many stocks which have risen by about maybe 50 percent as well in this last one month or maybe in this last couple of months post demonetisation. So I am not worried, I am not writing off the midcap and small cap story, still the ideas are lying a lot in that space.
Prashant: Would you have the same thought process in Tata Motors or would you differ?
A: I am keeping positive stance on Tata Motors because if you really take 2-3 situations which has really seen the bad numbers coming in, people have been talking of this exchange losses. But apart from that, when you see, just take an economic situation, if you see any country where you have seen the currency having weakened, you will be having the competitor who will be slashing the selling prices of their products as well and in that situation as well, the competitors that is Tata Motors or JLR will also be forced to go for the offering the higher discount, number one. Number two, still there is no clarity.
In fact, I have not been able to gather from the management concall that what kind of exchange losses they are talking of, what is the open position, whether it is for one quarter or two quarters. This cannot get extracted from the quarterly numbers by any analyst until and unless management comes out and speaks on that. So, maybe there can be some error on part of the exchange coverage policy or maybe the hedging policy if I would put it in that way. But you just cannot write off the company like that. In fact this is the situation where we get to enter into the stocks at such a valuations. Yes, time horizon may get a little enlarged, maybe to the extent of about 3-6 months, but at the current valuations of about Rs 440, I see in fact, find good value.
Maybe take the situation of monthly sales numbers of JLR. I am not depending at all on the domestic story because domestic story was never playing in the stock. If you see good sales numbers coming in for the JLR, maybe for the month of February. Again probably that will be a big trigger. Then the technical factors also comes into the play. Stock is becoming under-owned, short selling is seen having happened, weak hands are seen having exited. If you sum up all these things, we have largely or over factored in all the negatives into the stock price. And as an investor, I am not giving a technical call that you create your positions in future and options. But as an investor rather I will go for buying the stock at the current level.
Sonia: A lot of the NBFCs have come back on the buyer’s radar, GRUH Finance, Can Fin Homes, we were discussing PNB Housing Finance. You told us about how you liked this entire space for a while, but for the very near-term, what would your top pick be here?
A: Again, the same story that the story or the view or the positive bias is seen highly encouraging and intact on these housing finance companies. But only on the interim when the whole market corrects or remains sideways, you do not see them participating and same thing is seen having happening today. If you see two stocks, I just wish to draw attention, Can Fin Homes and I am not including the PNB Housing Finance and all that and the LIC Housing Finance intraday movement. If you see now, it is ruling at Rs 552. Can Fin Homes is ruling 5 percent higher.
So the story is secular, the story is seen intact and in fact you can add any number of stocks in this category if you really want to go for the midsized ones, Can Fin Homes and GIC Housing Finance because GIC Housing is also an equally screaming fundamental story. But if you want to go for the bigger ones, probably I will go with LIC Housing Finance and maybe Dewan Housing Finance (DHFL). I am not including Indiabulls Housing because that has seen a good run up in this last couple of weeks or so. So, I am keeping my positive stance on all these housing finance companies.
Prashant: I just wanted to put DLF over to you. How would you look at it? The management essentially has given themselves one more year to close that deal on the rental side. Will this dash hopes of any quick deleveraging happening or people you think will still hang on?
A: Two points because already if you see, this deal is one year delayed and if you are extending it to one year, in fact you are counting it 24 months, number one. Number two, the management commentary a couple of years back having given debt to bringing it down to Rs 18,000 crore on a realistic basis, I am not going by the market street estimates of Rs 15,000-16,000 crore. Now that is placed at about Rs 23,000 crore. So, you have a cause of worry and obviously extending this one year Compulsorily Convertible Preference Shares (CCPS) for conversion and then getting sold is sometimes either you are confused or you are looking for better valuations because of your greed on the hopes that the commercial, I am not saying that the commercial portfolios are not showing an improvement.
Even in this demonetisation era if you really see the commercial space, in the prominent places, maybe like NCR or maybe like Bengaluru or maybe like Mumbai are showing an uptick, so there is a demand also. So, maybe promoters in their individual rights are right in saying that extent it by one year. I will be able to fetch better valuations for shedding my 40 percent stake, but that may not gel well with the market because as I said, this is already one year delayed.
Prashant: The underlying operating environment is expected to change at all. There is only this deal which was supposed to act as a trigger which is now pushed out. So, briefly what would you say? Someone holding on in anticipation on that deal because if that were to happen, it is a meaningful deleverage for the company, but it may not happen any time soon.
A: Broadly I in fact completed my submissions or the points in support thereof, in fact, this is a very crucial deal. As I have quantified that if you have a debt of about Rs 23,000 crore plus with the company and this deal can fetch them about Rs 10,000-12,000 crore definitely that has been very significant because the management has not been able to adhere to the target of Rs 18,000 crore which market was comfortable maybe about 12-18 months back. So yes, you are right that this is a very crucial deal and this has already got delayed which is now market will say that nothing is going to happen in the next 8-10 months if the one year extension has been given.
So you are not expecting any kind of revival or improvement in the NCR region. Probably if the company would have had a strong presence in the other pockets of the country, probably I would have taken a positive call, but that is not the situation going so comforting in the NCR region on the housing fronts, on the residential fronts. So, taking all this into consideration, I am keeping my mild negative stance on the stock and seeing this extension of one year as a big negative.
Sonia: What do you do here because metals have had a great run this time. We were talking about MOIL earlier, National Aluminium Company (NALCO) reported good numbers and now so did Jindal Steel and Power (JSPL). What would you pick of the pack be?
A: If you want to take a call on the integrated ferrous steel makers you have this first is JSW Steel and then followed by Tata Steel. If you have seen the excellent numbers being posted by the Tata Steel also for the domestic operations. Maybe if you want to because now there are many small or few integrated steel players available. Essar Steel is only delisted so you just have the third company that is JSPL. But I do not agree that the management is saying that they are looking either for the Oman unit monetisation or Oman or maybe Jindal Power Limited listing because that is a long process and you cannot reduce your debt by Rs 40,000-42,000 crore.
So, this flip flop on the shorter terms I do not think will be seen workable. Yes, the working Q3 has seen a good improvement in the performance, but they need to monetise the assets and I do not think that IPO of JPL can really suffice at this stage.
Prashant: People who own Grasim and held on to it for a while, there is a big change happening now which would change the face of Grasim. What would your advice be?
A: Extremely positive view on Grasim because if you see the Aditya Birla Nuvo merger now seen happening. Closer to that maybe in the next three months, this is going to happen. The only worry in case of Grasim is that they should not stand as a financial investor in case of Idea-Vodafone merger happens because we all know that the Grasim and Aditya Birla Nuvo combined holds about 30 percent stake in the company. Merely share price increase will not suffice the purpose. Aditya Birla Nuvo Q3 numbers have taken a hit because of the telecom.
Obviously, all know that the Idea numbers have been really very bad. If you take the standalone operations of the Grasim, first of the viscose staple fibres (VSF), all four plants are doing exceedingly well with a capacity of five lakh tonne. Come on the chemical division, again caustic soda capacity of 8.5 lakh tonne exceedingly doing well. You do not have any concerns any issues on the 62 percent or 60 plus percent held in UltraTech.
And if you take the combined valuation, even post Aditya Birla Nuvo merger, effective ownership of 1.125 shares is coming in favour of one share of Grasim at the split level also. So, overall you have all the pluses except that the management should not be giving any statements that Grasim will be looking to invest about USD 1 billion or maybe USD 3,000-5,000 crore in the merged entity of Idea-Vodafone which they have negated.