In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shares why he has a positive bias on Bharat Financial with eyes on the company's quarter three numbers.
For oil marketing companies, his pecking order is HPCL, BPCL and IOC, he says.
Below is the verbatim transcript of S P Tulsian’s interview to Anuj Singhal & Sonia Shenoy on CNBC-TV18.
Anuj: Let me discuss Bharat Financial because I remember you were always saying that the fall was overdone the way the stock fell. It has had an equally sharp rally as well. At Rs 622 how is the risk reward stacked up?
A: Last week, probably on Monday or Tuesday when the stock bottomed out at around Rs 470-475 and then I said that I am expecting the stock to move to a level of Rs 600 in the near term and exactly that has happened. We have seen in fact market nobody was prepared to accept that the stock can bounce back. At that point of time last week the whole market was so negative on all NBFCs that people were not prepared to buy the argument and continuously for two days in the same afternoon show I have said that at the level of Rs 475, then next day at Rs 515 that stock can move to a level of Rs 600.
If you see the situation now, which has been the main cause, we have seen a good amount of foreign institutional investor (FII) selling in this stock. However, that FII selling has also been equally bought by the other FIIs like Morgan Stanley having increased their stake in the company to 7.86 percent in that carnage with the overall FII stake continue to remaining at around 75 percent.
The two triggers one – exposure to Maharashtra of about 11 percent and maybe about 8 to 9 percent in UP was over played. If you take a call on the company this is probably the most regulated MFI with the lowest interest rate they are charging of 19.5 percent. So, management came twice or thrice on the channel and they have said the things which they have been looking in Maharashtra is only in few pockets like Amravati or maybe in some pockets of Vidarbha. So, that was not a cause of worry.
Yes, the situation were little of concern in UP but because as I said the exposure was only 8-9 percent the things were not even looking equally bad there as well. Since then in fact I have been saying that this stock is looking attractive or in fact it is screaming buy. Nevertheless now since the stock has moved to a level of Rs 600 obviously that upside potential has not met. However, January 24th is the quarter three numbers when the company will declare the results. I won’t be surprised to see the share moving by then closure to a level of about Rs 680 to Rs 700.
So, that means I still continue to have my positive bias because all the weak hands, all the hard pressed sellers in the stocks seem to have exited which has been bought by the strong hands. So continue to have the positive bias, my eyes will remain on quarter three numbers, which will be declared on January 24th till then as I said price target of Rs 680-700.
Sonia: I wanted to get you in on one stock Mahanagar Gas. I remember ever since its listing you have been quite positive on that stock and in fact today that stock has hit a new 52 week high. We spoke to the management they were very confident as well about this CNG volume growth at Rs 825 how are you positioned on this name?
A: I am happy that the IGL and MGL differential seem to be getting bridged because I distinctly remember when the stock got listed at Rs 550 many of the experts were not very comfortable or not very happy and people have been recommending IGL which was ruling at that point of time at about Rs 750 . If you see the promoter holding maybe or may be the capital base or may be the financial performance, earning per share (EPS) on all parameters I have never found MGL to be inferior than IGL. Actually, at that point of time I gave a screaming buy call on the stock that if you can keep a view of about 12 months then definitely this will be seen as highly positive.
Going forward the gas availability is not seen a constraint which was otherwise the case with a company till FY15 or maybe FY16. Now and having launched in the new areas the two-wheeler is just one of the areas in which they have expanded couple of days back for which the very good response is seen getting evoked. The kind of queues which we see at the gas stations here in Mumbai city indicates that there is huge potential still to be seen. However, I think that now from here on stock having move to a level of or for having cross Rs 800 from here on you can only expect a moderate return this has become a portfolio kind of stock which will not be an outperformer but which can keep given you an annual return kind of things of about 15 percent. However, definitely volatility within this period is not ruled out. You need to see the fall of maybe Rs 25-30 at some point of time again going up by that equal amount. If somebody wants as an investor to have in portfolio this could only be giving you a moderate kind of returns of about 14-15 percent on an annualised basis.
Anuj: This Sintex Industries demerger – now of course we now that shareholders meeting. I mean it is not a new news. We know that they will be de-merging but Rs 81.50 is that a good time to book profit on Sintex?
A: Profit booking can be made now at the current level.
Anuj: I also wanted your thoughts on IOC that is bridging the gap between itself and the kind of underperformance that it had with say BPCL and HPCL? How would you approach this stock now?
A: Again a sensible move because if you see the situation probably IOC is may be 110 percent of the combined HPCL and BPCL and if you see this gas stations of 26,000-27,000, the company having issued the bonus, so that was in fact the stigma on the company that they are not coming out with the bonus or the huge equity. so sensibly the gap is getting bridged between the HP-BP and IOC but still I think HPCL will continue to be the most preferred one because BPCL being partly into the oil exploration also unless until the crude shows the significant growth the pecking order will remain as HP, BP and IOC. But yes the gap having bridge to a great extent between these two companies and IOC is a sensible move.
Anuj: Century Textiles was your top Diwali pick. Rs 839 on this one. You see higher levels from here on?
A: In February, 2016 when the stock ruling at Rs 420-425, we gave a buy call. At that time we gave a target of Rs 750, but it crossed to Rs 1,050. Now having corrected in this carnage and maybe having stabilised at around Rs 600-700 level, since then again, I see tremendous value. I will not be going on the hear-say news which has been floating in the market. If they come in, which are most likely and I do not want to elaborate and discuss on that, it can make the stock to move to Rs 1,000 as well.
But apart from those hear-say news, if you purely go by the fundamentals and the two sectors where I would like to draw the attention, one is on the paper segment and the segment if of the real estate, because if you see paper segment which I have been repeatedly saying for the last three months that paper division alone can give an earnings per share (EPS) of closer to about Rs 12-13 for FY17. Now, real estate about four lakh sq ft has been seen available for leasing it out in Prabhadevi where two lakh sq ft is there, almost 50 percent or more than 50 percent has been leased out. And the kind of pace at which the development is going on in fact are the fundamental triggers. So, yes, if you go on the floating news in the market, and these fundamental news, both can make the stock to move to Rs 1,000 and I will not be surprised to see those targets coming in the next couple of months because I continue to have a positive bias on the stock, as I said, from last one year or so.
Anuj: What is this news about that is making you so bullish about Rs 1,000 target?
A: There is no point unnecessary why to add fuel to the fire because let us focus only on the fundamentals. There is no point in unnecessarily speculating which otherwise may or because the news can get delayed but that is unnecessary so let us not add fuel to the fire.
Sonia: We have seen a big price way in the telecom space and it has only crunched down the operational performance of these companies. Do you see worsening because of this?
A: This will keep worsening every quarter. And this I have said when the Reliance Jio has announced the free offer till December 31 because if you are going to see, I do not think that things will end. Maybe come April 1, you will be seeing again the turn of Reliance Jio from the date which they will be making it as a commercial launch. And that commercial launch will not be on an expensive slate. Again, that will get extended. So, what Reema has said just now that this offer from Bharti is up to December, that will also get matched by Reliance Jio. So, the only two significant players or maybe Bharti can only compete with Reliance Jio and I do not think that Idea has the strength, I do not want to be very critical. I have seen that Idea is raising some Rs 1,500 crore and that shows the kind of liquidity crunch the company is facing. They are already having a debt of closer to Rs 30,000-35,000 crore.
Similar is the situation with Bharti, but Bharti being the largest player and definitely they would like to retain the market share. And mind it that Reliance Jio having touched the target of 5 crore customers is not enough for them. Eventually, they are looking for 15 crore customers maybe by December, 2017. That must be their internal target on the drawing board. So, they will keep their aggression on. So, this is really very negative news for the existing telecom players.