Tulsian picks out stocks that will benefit in near-term

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Tulsian picks out stocks that will benefit in near-term

SP Tulsian of sptulsian.com spoke to CNBC-TV18 about his strategies on PSU stocks that qualified as well as lost out on the government buyback plan, and also a few other stocks that have been in news of late.

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SP Tulsian of sptulsian.com spoke to CNBC-TV18 about his strategies on PSU stocks that qualified as well as lost out on the government buyback plan, and also a few other stocks that have been in news of late.

Q: As a trading bet from hereon, would you like to advice any of these PSU companies the likes of STC, HMT etc?

A: Purely on valuation parameters, STC still looks a good buy because if you see the market cap of less than Rs 1,000 crore vis-à-vis market cap of Rs 70,000 crore for MMTC , I don't think that there is any correlation.

The second stock which can be looked at is National Fertiliser Limited (NFL), but I don't think that NFL can get qualified for divestment in this new mechanism which has been cleared by SEBI. That's not in the top-100 companies in terms of market capitalisation, which is low. So sometimes, you get caught on the wrong-end in this euphoria.

In fact, I have been seeing HMT, National Fertiliser, RCF or for that matter even STC, I don't think all these stocks will be qualified for availing stake dilution by the government to 90% through this new mechanism because they are not in the top 100 companies in terms of the market capitalisation who have only been qualified. So probably, STC can be taken a chance with by value investors with a view of about two-three months.

Q: Which ones will actually qualify when you look through the sentiment rub-off that has happened across the board in this PSU space? Which ones do you think in the next six-eight weeks go through that route for some capital offloading?

A: In my view, there are only two companies - MMTC and Hindustan Copper . If you see both these companies, I don't think that one can expect the kind of valuations at which they have been ruling at. For instance, MMTC has a market cap of Rs 70,000 crore. The PAT of the company is close to about Rs 100 crore or maximum Rs 200 crore. Topline could be Rs 70,000-80,000 because it's a pure commodity trading game and if you translate that into an EPS, then EPS for MMTC works out at less than Rs 2. That can give you a PE multiple of Rs 350. So sometimes, you see irrational exuberance happening in case of MMTC.

If you recall, this stock had a market cap of nearly Rs 250,000 crore maybe about couple of years back during the peak time. That is now reduced to Rs 70,000 crore. If you take the marketcap maybe about two months back, then it was about Rs 40,000 crore.

Similar is the case with Hindustan Copper. Even if presume that Hindustan Copper also gets qualified, I don't think there is any justification for these kind of valuations for metal stocks traditionally, be it in private or public sector space as they have been ruling at a PE multiple of 9-10 times maximum when you take extreme case of the best metal company Hindustan Zinc. The company had Rs 5,000 crore cash accrual every year.
So I don't think that with this, Hindustan Copper earning maybe about close to Rs 250 per year that translates into an EPS of about Rs 15 can get qualified to get this kind of valuations.

That's why I said that the mechanism announced by SEBI is practical for all purposes, but I don't think it is workable for all these PSU stocks where we have been seeing irrational exuberance since this week beginning.

Q: Which one would have higher chances of having bottomed out Crompton Greaves or United Spirits ?

A: I am more positive on United Spirits because it is the largest spirit maker in the world selling 140 million cases and the current year EPS is Rs 40. I don't have doubts that they will be able to post 20% CAGR for next three or four years. In the last three years, they have moved from number three to number one spirit maker in the world.

Its market cap is around Rs 6,000- Rs 7,000 crore. Even on earning multiple, for FY13 I am expecting EPS to be at about Rs 48. This is because it has dislodged Diageo which has been selling 106 million cases per year 140 million cases sold by this company. Its 52-week high has been at about Rs 1,500, close to about Rs 1460-1480.

I don't know the reason for such a big fall because there was lot of negative perception building upon all the UB Group stocks especially United Breweries and United Spirits. First United Breweries corrected and then United Spirits. But I don't see any reason for the share to fall so much. Today, renewed buying interest may have come in the stock at lower level.
I won't be surprised to see institutional buying coming into the stock because FIIs are already holding 53% stake against 28% by the promoters. Any delivery based or institutional buying must have led to the short covering also. This trend is likely to continue. I won't be surprised to see price moving close to Rs 700 in the next one month. Things should take some respite and then consolidate at those levels.

Q: What is your view on Tata Motors and Tata Motors DVR?

A: Tata Motors DVR also goes up in the same proportion because discount is ruling more than 50% and now it is at 52%. We have seen very good performance in the monthly sales figures from Tata Motors for the last couple of months. That has been leading because the share has been ruling at a PE multiple of about 6-7%. One can attribute the rise in the share largely due to value buying. But in my view, the rally should stop Rs 208-210 and profit booking may come at those levels. So, it will not be prudent to take a long call on Tata Motors at this stage.

Q: Do you think REC and PFC have bottomed out and would it be a good idea to latch onto stocks like these?

A: I think both the stocks have really become very good for traders. I don't think that there is comfort seen for the investors who have a longer time horizon of maybe six to twelve months. But still, if somebody wants to take a fundamental call or maybe an investment call, probably, consecutive weakness is there for maybe two to three days. I am unable to give the price levels that can really be the entry point. But otherwise, these have become more as trading stocks and I don't think that investors will really be comfortable making investments now at the higher levels.