Apr 20, 2017 05:00 PM IST | Source: CNBC-TV18

Here are some fundamental trading ideas from SP Tulsian

In an interview to CNBC-TV18's Anuj Singhal & Sonia Shenoy, SP Tulsian of shared his readings and outlook on market and specific stocks.

In an interview to CNBC-TV18's Anuj Singhal & Sonia Shenoy, SP Tulsian of shared his readings and outlook on market and specific stocks.

Below is the verbatim transcript of the interview.

Sonia: I know you have tracked Jay Bharat Maruti in the past; I don’t know if you still keep an eye out on that stock, but very good numbers coming in and now it has hit a new high of Rs 520. Do you think this story has played out here entirely or is there more to go on the upside?

A: It is really excellent growth having posted by the company in terms of the result and so in the share price also. However, we have been keeping extremely positive view on all the auto ancillary stocks and I remember maybe Jay Bharat Maruti was recommended about maybe in two digits four to five years back and since then we have seen the company continuously every quarter they have been posting very good numbers.

However, maybe now at the current price probably I won’t be taking a call now to buy the stock because so many ideas are available in the auto ancillary space. If you take a call, there are about 60-70 listed stocks available and in many of them we find lot of value still existing. Just to give you few names here maybe like Banco India, Minda Corporation, Magna Electro Castings, or Wabco in the bigger space, ZF Steering, these are all looking quite good or maybe Rico Auto.

There are many stocks available at much lower valuations than what we have been seeing in Jay Bharat Maruti. I am not saying that the journey will stop here for the share price to go up further, but I would not be taking a call now in the stock at the current level.

Anuj: Any thoughts on Sun TV?

A: Since I am keeping positive view on Zee Entertainment, and if you take a relative valuation call, I think Sun TV is also looking quite good because now I don’t think that there is any kind of political hiccups which we may be seeing against the Sun TV Group or maybe against Maran Brothers because that used to be seen as a big overhang on the stock price.

However, after stock having accumulated by the strong hands and funds in the last three or four months, purely on a valuation basis and when you compare it with peers like Zee Entertainment because I have been keeping extremely positive view on the electronic media, so, going forward, Sun TV looks good. However, maybe one can wait for the stock price to dip now because at the current levels, probably we will prefer more on Zee Entertainment than Sun TV.

Sonia: Future Retail, new high over there on the back of some demerger plans. What would you do with the stock now?

A: This demerger plan was being talked for quite some time and we have seen a big restructuring. Probably this restructuring having taken place in the group companies has led to this valuation growth. I am not too enthused because for every 20 shares held of Future Retail of Rs 2 value, one share of new company will be issued having a face value of Rs 5.

However, that move of hiving off this division is seen a positive move. If you take again on a comparative valuation basis with the Avenue Supermarts (D-Mart), because if you take for Future Retail, the kind of spectacular improvement in the margins and the earnings they have shown, and topline is still higher than the D-Mart, D-Mart has a topline of closer to about Rs 9,000-10,000 crore while Future Retail has Rs 15,000 crore.

It is only the matter of margins because EBITDA margin and PAT margin is seen quite high in case of D-Mart to the extent of about 9 percent and 5 percent which is there in case of Future Retail at maybe 3.5 percent and about 1-1.5 percent. So, there is scope for improvement, margin expansion can happen in Future Retail. Even on the peer valuation comparison also the stock looks quite good even now at the current level.

Sonia: What do you with some of these stocks, Kitex Garments for example is up 20 percent but we know the kind of wealth that this stock has eroded over the last many weeks and months, any caution to investors?

A: I have heard Anuj and in fact continuation to your query also, you are right in giving the example of Kitex Garment. If we have seen the wealth having destroyed in the past, it is very essential either to take a call on the industry or on the performance of the stock. If we are very sure that things are likely to get improved in the near term or maybe wait for the Q4 numbers to get released then only take a call. Just to give an example, if you recall, about a week back I had given a call on Bhushan Steel and Monnet Ispat expecting that the NPA resolution can be seen big positive and today we have seen in fact Bhushan Steel going up by maybe about 15-16 percent.

Going by the restructuring move, I fully agree because we have referred a while back for Future Retail, in case of Future Retail in fact the non-related or the low margin business is getting hived off and if market is reacting exorbitantly or showing irrational exuberance for that small move also then you should remain away. Coupled with that restructuring move having initiated by Future Retail, I have coupled the valuation or the fundamental call of the share price with D-Mart as well. So, yes, it is very essential to take each restructuring move which we have started seeing nowadays in a big way for each company on a case-to-case basis.

Sonia: Mastek has done well this year but it has been very volatile over the last many years. 7.5 percent higher now on Mastek, how would you read into these numbers?

A: I will just say that I agree with Anuj and Dipan Mehta, what both of them have said because I don’t think that this stock is seen to have any comfort at all. Even in the hay days of IT industry also if they have not been able to satisfy and when you are not in a mood to or you have any courage to look to the IT stocks, I don’t think that one should really be buying the stock or looking at the results with cheer to look to buy as a new idea.

Anuj: One of your favourite stocks, Hindustan Zinc, at Rs 280 what is the call?

A: Excellent numbers and if you take a call, probably this translates into an EPS of closer to about Rs 7. You are right in saying that this is a commodity stock in backward numbers. However, what I can say that looking to the zinc demand and if you have heard the global analysts also saying the kind of applications, the zinc is now used in America as well as in China and even in India, I think the zinc consumption is going to go up. They have switched open cast to underground mining and the effect of that has started seen visible in the Q3 and Q4 numbers because having completed that migration from open cast to underground has given them the cost advantage as well.

However, apart from that, I think that situation on the zinc front and as well as on the lead front also because if you see the secondary lead makers also like many others Nile and those other makers also have shown a tremendous growth. So, overall, all their three segments, lead, zinc and silver, they all are doing quite well and I am quite hopeful that maybe because if you take a call that they have an investment income also on Rs 30,000 crore of which Rs 15,000 crore have been taken out by the interim dividend, so, I don’t think that that will get impacted and I won’t be surprised to see an EPS of closer to about Rs 28 for FY18 going forward if you take a call on the expected demand for zinc going forward as well.
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