Oct 03, 2016 09:25 PM IST IST | Source: Moneycontrol.com
Tulsian tells: Why cement companies are promising
In an interview with CNBC-TV18, market expert SP Tulsian listed his stock picks and shared his market outlook.
Below is the verbatim transcript of SP Tulsian’s interview to Prashant Nair and Latha Venkatesh on CNBC-TV18.
Latha: Your favourite cement stock, Nigel D'Souza just spoke about Sagar Cement but what would you pick? Today everything is up and about.
A: Continuing the theme which Nigel has presented I will keep focussing my view on the Andhra Pradesh or the south based cement stocks because I have been keeping an extremely positive view on these companies and if I just give some names actually there are six or seven companies which are looking quite promising, which have a strong presence in Andhra, Telangana and yes this money disclosure scheme is one of the feature that how the Andhra and Telangana economy is really thriving. So, maybe Sagar Cement is definitely one from that space
However, if I add some other names as well which I have been giving and which I have given in the past one is Kesoram, because if you see 7.25 million tonne they have capacity in Andhra and Karnataka.
Second could be Deccan Cement, third could be NCL Industries, fourth could be Keerthi Industries and fifth could be Kakatiya Cements.
All these five companies are having very strong presence in Andhra and Telangana with good capacity utilisation seen ramping up for them against the industry average ramping up of about 8-9 percent they have all been seen growing at 20 percent.
So, obviously the advantage of operating leverage is seen coming to them. So, these are the five companies which I will advice keeping a view of next 2-3 months which can give you a gain of 15-20 percent from the current level as well.
Prashant: There is a huge amount of infrastructure build out which is happening in that area. So, that is essentially the big trigger, the dominating driver for the thesis here for these companies or you think as Nigel was pointing out Sagar Cements, 5 million tonnes capacity, market cap of about Rs 1,100-1,200 crore, there could be other triggers as well, takeover candidates. You think those kind of stories are also potential reality down the line or do you think it is just the infrastructure build out in that area?
A: There are two points, one is a general point and second is a specific point. Coming on the general points, the road sector the kind of growth which we will be seeing firstly take a call that monsoon is coming to an end in the entire India from here on till June 30 we will be seeing tremendous off take of the cement going forward and thanks to the road construction which we will be seeing as a big trigger.
Coming specifically on the Andhra centric cement companies because still we call them as Andhra centric cement company in spite of the state having bifurcated into two that it Telangana and Andhra the kind of building up which we have been seeing in Andhra Pradesh as well as in Telangana both because both states are competing now and even Andhra Pradesh wants to build up new capital and all that just continuing with the same theme I appreciate the Sagar Cement valuation which Nigel has stated of market cap of about Rs 1,200 crore with a cement capacity of 5 million tonne, if you keep doing this kind of calculation then you will get excited practically on all five companies which I have been saying in the past also with Kesoram Industries with a market cap of closer to about Rs 1,600-1,700 crore with debt of Rs 1,200 crore and mind it the debt has reduced from Rs 5,200 crore to Rs 1,200 crore in the last 6-8 months I have not seen any company having reduced their debt by 80 percent in last six months and the kind of capacity that they are having is 7.5 million tonne, again present in both the states.
Again they may be having some kind of corporate trigger which we have been hearing that Kumar Mangalam may soon join the board of Kesoram Industries. The day this news will come you will find the stock moving up by 15-20 percent.
Take the case of NCL Industries, they have cement as well as they have particle board making. Take the case of Kakatia Cement, they have cement, they have sugar. Take the case of Deccan Cement, again pure cement play with a Price-to-Earnings Ratio (PE) multiple of maybe a single digit.
So, what my point is that you need to take an individual call on each stock and when you will be making that fundamental comparison probably you will find some kind of unique trigger coming out for each stock making investments in that. That is what I said that as a general call if I take on all these five stocks which I have given the names you may expect a return of about 15-20 percent in the next 2-3 months.
Latha: The midcap index as we all have been highlighting at fresh all time highs. Are there bargain buys even now anything that comes to the mind?
A: If investors have to make money they will get that money only with the midcaps and this has been my theme. In fact in the start in 2016 has started just to give you an example we may say that all the auto stocks are in large cap.
I am not saying that none of them are in the midcap but just to give an example take the case of TVS Motors which we have been discussing if you take the relative performance I don't have the comparison probably if one statistician can draw that TVS Motors has given a return of 25 percent in last five weeks.
I don't think that kind of return may have been given even by Maruti Suzuki also and which I have been repeatedly taken a positive call when the stock has corrected. Prashant has touched upon the margin front.
If you are increasing your market share so quickly with 8 lakh plus vehicles having sold in the second quarter and even if you increase your margin from 7-7.5 percent because as such the management have always said that they are looking to increasing their market share and not margin for the time being.
So, what my point is that the same theme applies for the die intermediates, cement companies, automobiles, auto ancillaries and if you recall on Friday I recommend Akshar Chem which is in upper circuit.
I think that the upper circuit will continue in the next two days. Just to give you a pointer that all this die intermediaries have given a return of 20 percent in this last maybe 2-3 days Bhageria Industries or maybe Bodal Chemical.
So, what my point is that look for midcap or small cap stocks where you are very convinced about the scalability of the good results which can be seen in the next 2-3 months. So, the next theme could again be in the Non-Banking Financial Company (NBFC) space like Dewan Housing, Ujjivan Financials, Equitas Holding.
So, my theme is that look for midcap in all these sectors, auto ancillaries, cements, die intermediaries, NBFCs or maybe public sector undertaking (PSU) banks after seeing the Reserve Bank of India policy tomorrow.