In an interview to CNBC-TV18‘s Latha Venkatesh, Anuj Singhal and Sonia Shenoy, SP Tulsian of sptulsian.com shared his readings and outlook on market and specific stocks.
Below is the verbatim transcript of SP Tulsian’s interview to Latha Venkatesh, Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Sonia: We are picking some exclusive information that TPG is likely to buy stake in Fortis and that the deal will be announced anytime in the next 10 days or so. The stock has run up significantly over the past couple of months but how do you approach it here on if you have tracked that space?
A: There are two news lined up, first you need to take a view on the fundamentals and second is this news of TPG buying stake into the company. Now, we all know that the Singh brothers have been trying to exit from the company but again the model or the modalities on which the divestment or maybe the monetisation of their stake is likely to happen is not very clear because as gathered from the media reports, they are all looking for piecemeal divestment. I don’t think that how much valuation they can really fetch for that.
Coming on the financial front, maybe their diagnostic business getting hived off or maybe the improvement in the financials were all not seen into the company. So, I have been keeping a negative, I won’t call it negative but as a neutral stance on the stock because if you see in the healthcare space there are other ideas available like Apollo Hospitals which has been the consistent performer and people have been trying to correlate Fortis also with Apollo Hospital for maybe ages, maybe for last four to five years. However, the investors having invested in the stock have got highly disappointed.
So, I won’t be keeping any positive stance and it is always risky to chase the stocks where you don’t have high conviction at the upper level. So, I will be keeping my neutral stance, I won’t be taking a call of buying the stock now at the current level.
Anuj: I will never get tired of asking this question because this rally is continuing unabated. Sugar, of course you recommended these stocks when they were 20 percent of current market prices but you have been still bullish on the UP based sugar stocks. What would be the pecking order now and can we still expect another 20-30 percent gain from here?
A: Let me bluntly say this that the media and analysts have not understood this story, let me say that without any hesitation. In fact there are two rounds; let me correct you that the stocks having recommended by me about 18 months back have given a 6-8x kind of return, 600-800 percent return. However, apart from that, on November 18, if you just rewind the shows of your channel and all that, on November 18 and November 21, I have been giving the screaming buy on all the UP based sugar mills.
On our anniversary issue on December 7, I just gave an example, Dwarikesh Sugar at Rs 290 and today the price is Rs 410; that means you have seen a gain of 45 percent in one month. If you really see the situation now, all the -- in fact if you take first let me give you a fundamental call that UP is the only state which will be producing the quantity of sugar more than what they have produced last year, that is last season. They are producing last season 69 lakh tonne, this year they will be producing 72 lakh tonne. Now, if you see Maharashtra and Karnataka will be seeing a drop in the production by about 30-40 percent in this season, over season last year. In fact ISMA has been maintaining production target of 234 lakh tonne for this season which I have categorically said that it is not likely to exceed beyond 210 lakh tonne and maximum 215 lakh tonne. In fact I am sticking to my view of 210 lakh tonne.
Now, before that let me just give you a quick effect of these UP elections. Now, the code of conduct have come in, people were earlier expecting that probably government will reduce the import duty to zero to control on the prices but nothing can get announced now by the central government either on account of the quantity freeze, maybe the stock is freeze, or maybe cut in import duty or any kind of relation to sugar because UP being the sugar based state because oppositions will not leave them. So, government has to tolerate whatever is happening on the price front which has already started moving up.
On the global front, if you see white sugar have gone to USD 540-545, that is FOB which translates into Rs 37-38 per kg. Raw has gone to 20 cents per pound in the international markets. Domestic prices have started moving to Rs 36-37. So, if I say across the board on the UP based sugar mills, still I expect the prices to move up to 25 percent from current level. However, now, the ideas are to find out the companies because people are just lapping any company with the name sugar. Now, you have to identify the sugar stocks which doesn’t have the tag sugar to their name but they have a significant presence. If you ask me to identify two stocks which are having significant presence in UP, one is DCM Shriram Limited and second is DCM Shriram Industries Limited.
DCM Shriram Industries Limited is listed on BSE, they have presence in sugar, they have presence in industrial fibre, chemical while DCM Shriram Limited is having presence in sugar, caustic soda, agri marketing, and so many other things, seeds and all that. Both the stocks are looking equally promising and probably they will outperform as I am giving a gain of 20-25 percent still on the UP based sugar mill, probably both these duo may perform or give a return of 25-30 percent, maybe 5 percent higher than what other UP based sugar mill will be giving you in the next three months or so.
Q: Anything that we may have missed on Wockhardt? I know this stock is now off your radar but anything that could be driving the stock?
A: Stock is off radar only in respect to the timeline for the US FDA clearance. I have not written off the stock, I have just said that I won’t be speculating on the timeline because this I have said earlier also, maybe a month back when your channel broke out about the US FDA coming in for their one of the Aurangabad plant, I said that if it comes then it will be seen quote positive but nothing has been seen happening on that front.
If you see, once the US FDA starts coming in, maybe on any of their plant, whether Chikalthana, Valuj or Shendra, I won’t be giving any credence to this Ankleshwar kind of things which are just making the APIs, in fact three plants are very important which I said Chikalthana, Valuj and Shendra. It doesn’t make any difference which plant will come first but if it starts coming in, then I think it is just matter of three to four months in which all three plants will see the US FDA clearances coming in and once that happens then the stock you will not find at the current level, then the stock may rise by 40-60 percent, whatever it may be seen happening post this clearances.
Anuj: You were bullish on this space when we spoke yesterday, Rs 377 on Transformers and Rectifiers, what kind of returns can it give?
A: Yesterday I gave you four transformer stocks if you recall, Voltamp Transformers, Transformers and Rectifier, Bharat Bijlee, and in fact if you see all these stocks are looking good and I won’t be able to give you the kind of expected return but still across the board 25 percent returns can be expected in 2017. However, let me add here two companies which have not come on the focus of the T&D with respect to all the experts which they have all been missing and once the stock starts moving up they will all start lapping those stocks.
One is GE T&D. If you see, if you compare it again with GE Group company with 75 percent stake, very good market share, topline of Rs 4,000 crore, again if you compare ABBs ruling at a forward PE multiple of Rs 60, GE T&D is also moving at a forward PE multiple of Rs 60. However, GE T&D is available now at a 52 week low, virtually at a 52 week low. Once it starts moving up, only it is just a matter of turnaround in the performance, stock can give 50 percent returns.
Second stock which I am looking is again Crompton Greaves. If you see the standalone operations, Rs 6,000 crore topline as against Rs 4,000 crore of maybe GE T&D’s, Rs 8,000 crore of ABB, again once this global business of Crompton Greaves goes away, that is of B2B automation and T&D space both, which in my view will get monetised maybe in B2B automation in this month and T&D in the next six months then again this will be a company which can give you 50 percent return in 2017.
So, on the T&D space my two top picks would be Crompton Greaves and GE T&D with expected gain of 50 percent in 2017 while the other transformers which are said can give you a return of about 25 percent.
Sonia: This is a space that you have been bullish on for very long time, the auto ancillary space and we are seeing many of these stocks, Sona Koyo, Gabriel, Endurance doing pretty well. What are the stocks that one can still get into afresh now?
A: I am highly bullish on the auto ancillary space but not keeping so much bullish view on Endurance Technology because we need to see at least one quarter results or maybe in fact I would be taking comfort only after seeing the two quarter numbers. However, yes, you are right, though we have lot many ideas available in the auto ancillary space but if I need to point out few of them, I can say that one is Banco Products which is looking quite good. In fact the stock has moved from Rs 180 to Rs 210 having recommended by us by about couple of weeks back.
Apart from that, Subros, if you see the Maruti Suzuki sales kind of things, the air conditioners supplied by this company will ride on the momentum and with the Maruti plants going on-stream at Gujarat plant from first week of February will add the positive bias of Subros going forward.
Third could be Magna Electro Casting, again a very small or maybe smaller player prevailing in the auto ancillary space. So, that again looks quite good. So, these are few ideas which are into the auto ancillary space but though as I said that we have given calls on 10-12 stocks but as of now these three stocks are looking quite good, Subros, Banco Products, and Magna Electro Castings.
Sonia: A quick word from your end on the metal stocks and if there is still any incremental gains that you expect to see in any of these names?
A: This is extremely positive news, in fact we need to understand that China having realised that dumping is not the solution, number one. Number two, if you see the world over induction furnace route is not seen to be economical for steel making against arc furnace routes. So, rightly so China is closing down induction furnace route which is an old technology and maybe about 80-100 million tonne will be taken away.
Now, if you see going by the China factors, they have already cut their production to about 900 million tonne against their installed capacity of 1,300 million tonne. I agree that it will be seen quite positive for the banking stocks but if you see going forward, the kind of gains which will accrue to all these companies and in fact whenever these commodity stocks takes a turn, they start making huge kind of profits and in fact apart from the pure steel makers on which I am just keeping my hand only on one stock that is JSW Steel because maybe Tata Steel is seeing the sentimental effect – I agree that they have significant presence of 12-13 million tonne in India. However, I will be keeping my positive stance on JSW Steel.
Apart from that, again the same theory which I have been propagating for the last couple of months of the natural resources which are used for steel making, I would say mild steel, that is ferrous steel and apart from that the alloy steel which I have given three or four steel makers in that space of also like Sarda Energy, Sunflag Iron, in addition to the JSW Steel, so, I am keeping extremely positive view on steel making and the natural resources in respect to the ferrous alloy, that is like Sandur Manganese, NMDC, these kind of stocks are looking extremely good now.