In an interview with CNBC-TV18, SP Tulsian of sptulsian.com, is bullish on sugar stocks. He also makes a buy call on the metal stocks as he is positive on natural resources. He bets on Indian metal ferro, MOIL, NMDC, Sandur Manganese.
Below is the verbatim transcript of SP Tulsian’s interview to Latha Venkatesh and Reema Tendulkar on CNBC-TV18.
Reema: In the midcap end of trade, it is clearly the sugar stocks which are very sweet. We have the chairman of ISMA and he told us that he has met the finance minister. They have made a plea to restructure the debt on the books of sugar companies and consequently the stocks are all up in trade. How would you read this particular development?
A: I think there is some disconnect with the story. I have heard the ISMA president saying that the meeting has taken place with the finance minister and in regard to debt restructuring but I am unable to understand -- just to give you an example that Balrampur Chini is a debt free company, I have seen that flashes that Balrampur Chini has a debt of Rs 1,700 crore. That is totally incorrect.
If you see the balance sheet situation – I am just giving an example, then I will come little later on the other stocks as well, Balrampur Chini has a long term debt of Rs 350 crore and that too from the sugar development fund which has interest rate of maybe 2-4 percent and on a working capital, they have a debt of about Rs 250 crore against working capital or maybe the inventory of about Rs 600-700 crore.
Same thing is the case with Dwarikesh Sugar, Dalmia Sugar or maybe take any UP based sugar mills company, I am not talking of Bajaj Hindustan in that category because the problem of Rs 6,000 crore debt is because of their foray into the power generation. So, this stand of asking for debt reduction, in fact let me put the facts correctly that there are no sugar dues in respect to this UP sugar based mill which are listed on the stock exchanges.
Come on Maharashtra, the situation is very precarious in Maharashtra. The mills have started closing down for this season. We call season 16-17 which starts on October 1, so, they are technically supposed to run up to March end or April but I have not seen in my career of 40 years -- I must have visited 100 sugar mills in this last 30 years and I have never seen the crushing coming to an end in the same calendar year. So, in Maharashtra and Karnataka, things have started closing down, mills have started closing down and I think by January 15, all the mills will get closed down and the estimated production of Maharashtra and Karnataka are seen lower by about 40 percent.
If you recall, for the last one week in the afternoon show I have been giving a screaming buy call on the sugar stocks. If you just go by the price chart in this last one week, the domestic prices have risen by Rs 2 per kilogram and mills have stopped selling. Last selling has happened at Rs 3,650 in UP. So, if you go by the whole situation, ISMA has projected a production of 234 lakh for this season but my estimates goes at 215 lakh and I don’t see any reason even to production exceeding beyond 216 lakh also, even by 1 lakh to 216. Maybe ISMA is keeping it at a higher level, not to sensationalise.
So, this debt restructuring which is being talked of is only in respect of Maharashtra mills and whole Maharashtra or maybe I would say 95 percent, maybe two mills held by Dalmia Sugar in Maharashtra, rest all are in the cooperative sector and there they have a huge problem of debt and this thing which doesn’t impact the stock market listed stocks in any way. So, this is pure a fundamental call, in fact the situation is going to get worse once the mills start closing down, totally gets closed down in Maharashtra, in Karnataka and when the revised targets will come in.
Maybe if you see on the global front also, probably in next couple of weeks you will see the commodity prices start hardening there also of the raw sugar and all and that was the reason in fact post our recommendation for last one month on the channel, the stocks have already -- only of the UP based sugar mills stocks have already risen by 15-20 percent in this last one month post our buy call having been given on them. Still we maintain a buy call and I think the best is yet to come because I won’t be surprised to expect a realisation of Rs 38 per kilogram maybe in next one month by the mills based in UP.
Latha: We went over this entire issue yesterday, the power minister seems to suggest that it is for the company to approach the court. This looks like strange, if the company if it was as simple as the company approaching the court why didn't they, where is this issue stuck?
A: Difficult for me to take a legal call but I don’t think that company will have a locus standi before the court of approaching the court. In fact court will throw them away because this matter is not before High Court or maybe at the lower court, it is at the Supreme Court. In fact the deep question of laws are involved in respect to the amendments of the mines and mineral act and Supreme Court have earlier asked the government that what is the hurry for you to divest the stakes in a profit making company.
So, government has to present the cases in respect to the opinion of the Attorney General have all been obtained in this matter earlier also by the Supreme Court. Government is definitely seen very keen, in fact Piyush Goyal on the earlier occasion also twice or thrice have said, on the other hand Anil Agarwal is very desperate in fact yesterday also I have said in respect to the Cairn Plc matter that probably there would be quid pro quo if they submit to accept the tax liability in respect to the settlement. This is only to give them the attraction of buying 29.5 percent stake, Rs 125 crore shares held by the government of India.
In fact both are keen, government is keen to divest, Anil Agarwal is keen to acquire. However, I don’t think that the matter is so simple that Hindustan Zinc or Vedanta Group can join as a party. I don’t think that they will be having a locus standi to do that before the Supreme Court but as I said, I am not a legal expert so I won’t be able to comment beyond that.
Latha: Any thoughts on this, I do not know any further details, all that we have is that the Air India-NBCC deal has fallen through -- this is coming from Cogencis, a newswire, differences over valuations hit that land deal. Is this a stock or a deal that you have tracked closely?
A: It is causing me a puzzle because if you see, NBCC has always been getting the nominated contract. Sometimes I wonder that what kind of negotiations which must have caused in sticking to this one because they do get the project management consultancy fee on the cost plus basis because that is what has always been hinted by the management that they don’t see any kind of working capital pressure and any kind of losses coming on that account and actually because of these kind of non-clarity, I have kept my cautious view and that is in fact if you see the NBCC price behaviour also it has moved in a range of maybe about Rs 210-260.
So, honestly I am unable to understand the contours that why the deal has not consummated, why there should be any kind of confusion if a PSU undertaking is getting the assignment from another PSU undertaking on a nomination basis.
Latha: Among the better performers this year, have been the metal stocks and among the worst performers, have been the pharmaceutical stocks. I think the pharmaceutical index went down this year by about 14.5 percent, I think it is the BSE pharmaceutical or Nifty pharmaceutical which you want to pick and amongst sectors if you want to pick up the ones that have done the best of course it is Nifty metals which went up by 46 percent. Anything in both these spaces, one should you stay on with metals, two should you dip into pharmaceutical?
A: I will remain away from pharmaceutical because firstly there is no clarity from the USFDA front on many of the companies. Two, if you see the kind of profit expectations to be seen from these companies, probably it will take some more time because if you are missing the US growth, US market and not seen coming growth from that market then definitely things are looking little cautious for the pharmaceutical stocks.
Coming on the metal, I have been maintaining that I am highly positive on the natural resources and more especially on the ferrous metal front. In fact we have given a call on the stocks like Indian metal ferro alloys which are making ferro chrome, at Rs 450 about a month back and today the share is ruling at Rs 625. I won’t be surprised to see the share moving maybe to level of Rs 750 as well for the next three months.
Come on the other two, ferrous natural resources stock, one is NMDC. The company has raised the iron ore prices from October 1. So, obviously Q3 numbers are seen to be quite good. Second will be MOIL, manganese ore prices have again been raised by the company on October 1 by 30 percent, on November 1 by about 15 percent. So, that is also going to get reflected into the better Q3 numbers and both the companies have gone for share buyback due to which the equity reduction has happened by about 15 percent in cases of both.
The fourth company which comes to the mind is Sandur Manganese because if you see again, Sandur Manganese as a ferro iron ore and ferro alloys both or manganese ore both, so, again you have the advantage of higher iron ore prices and higher manganese ore prices also and again Q3 numbers are going to be excellent. I won’t be surprised to see Q3 numbers alone posting a growth and EPS of about Rs 10 against Rs 16 having posted by the company for H1.
The entire production is sold to JSW Steel and JSW Steel is in some kind of talk with the company as well for an arrangement of long term or people have been talking that they are even looking for acquisition of this company also. So, amongst the ferrous metal space, on the natural resources front, these four stocks still looks quite good to us.
Reema: I just wanted to get your views in on Bharat Financial Inclusion. There was a sudden reversal that we saw in the stock about an hour ago, are we done with gains for Bharat Financial for now?
A: These are just a technical move and we should not get too much worried because three days back stock was ruling at Rs 470 and if you have seen the stock moving to Rs 620 just see in three days time, so, these kind of profitability, this kind of profit booking do come in. I am not worried on the stock because I have in fact three days back also consecutively for last three days we have been giving buy call from Rs 475. This kind of profit booking even if it happens it will just be seen temporary and I think the problem of the foreigner institutional investor (FIIs) selling seem to have got over.
Company still continues to have the 75 percent foreign ownership in the company. Morgan Stanley has increased the stake. I have repeated all these positives on Wednesday afternoon and even yesterday also. So, this profit booking is not disturbing us which is obvious after a run of about Rs 150 having seen in this last three days on the stock.