Here's why SP Tulsian is positive on realty, white goods stocks

SP Tuslian, CEO at sptulsian.com remains bullish on Mumbai-based realty stocks like HDIL, Oberoi Realty provided the Maharashtra government allows the use of Transferable Development Rights (TDR), as these companies have highest share of TDR. He also maintains his positive stance on white goods segment. Owing to the scorching heat that is yet to be seen in Mumbai, Tulsian expects the air conditioner stocks and white goods stocks like Lloyd, Lupin, Hitcahi to be upbeat. Below is the verbatim transcript of SP Tulsian’s interview with CNBC-TV18's Sonia Shenoy and Anuj Singhal. Anuj: I want to start by asking about the Mumbai based real estate stocks because I remember last week you had said that some of these stocks are among your top picks, the names like HDIL, DB Realty. What do you make of the big surge that we have seen. Oberoi Realty is of course news driven but would you maintain your positive stance on Mumbai based real estate stocks? A: At that time I have said that the Bombay Municipal Corporation (BMC) or maybe in consultation with the Maharashtra government is looking to allow the use of Transferable Development Rights (TDR) because at that time the theme was same and I am holding the same theme that TDR now can only be used in the Mumbai suburbs i.e., from Sion to maybe Borivali and maybe beyond but now the government is thinking of allowing this TDR to get used in the Mumbai city as well. Suppose if you are holding a TDR certificate in the area of Malad, Borivali or maybe in any suburbs of Andheri that can even get used in Colaba also, not of the equivalent area but based on that ready reckoner rate. Suppose in Andheri the ready reckoner rate is Rs 10,000 and in Colaba it is Rs 30,000 so TDR can be used for 1 sq ft in that area. So, this is what is seen as a big trigger and in fact when you talk to few people they are quite hopeful that these kind of things is likely to get allowed because of the simple reason that there is huge demand in Mumbai city while there is no available land and all sort of things, number one. Number two, if the government implements this rule there will be a drastic reduction of use of TDR. Effectively, the built up area will not increase to that extent without putting much pressure on the civic amenities. Again there seems to be a logic behind this move if gets implemented. So, if you accept this theory or if you go on this premise then HDIL and DB Realty have the largest TDR holding with them and probably they be seeing the biggest beneficiary but yes, as you have rightly said Oberoi Realty is totally different on a different premise that IKEA is looking to buy the big chunk of premises on ownership basis, not on rental basis because the special steel or Tata Steel, Tata SSL the plot which Oberoi have bought they have already commenced the construction and development there. Total work is seen at about 25-30 lakh sq ft. It will be a residential complex but again there will be some kind of commercial space also. And IKEA is now expanding in a big way in the country so it won't be a surprise if they acquire the property of about Rs 1,200-1,500 crore which will be seen positive by the Oberoi but obviously Oberoi has denied, they have not confirmed it but that is quite possible. This is the overall theme or news prevailing for the real estate stocks for Mumbai region. Sonia: I remember you clearly mentioning that some of the south based cement stocks are what you like. You even mentioned Heidelberg Cement a couple of weeks ago and that stock has been hitting new highs. What remains the pick of your pack now? A: Market has still not understood the cement story and the kind of growth we are seeing choosing Andhra was only one pocket where the relative growth in terms of production and in terms of the sales are seeing the maximum. I am referring Q3 over Q4 because Q3 was seen partly washout for Andhra region also because of the Chennai flood and all that. But if you really talk to the people or to the industry veterans they are all expecting double digit growth and this kind of expectation is really mindboggling and the kind of operating leverages which will be seen now and that is the reason there is so much interest seen lined up for any kind of acquisitions which are available. We have all seen that maybe in case of Lafarge 11 million tonnes, three or four names are seen coming up for that. If you see the 400 million tonnes cement capacity of the country they are all operating at an average of 72-73 percent. That is the demand increases in double digit see the operating leverage which will be seen available to these companies and probably Andhra and Telangana the companies there are 6-8 companies in that area which have repeatedly given their names and they can be seen as big beneficiaries but I am not saying that you only remain confined or focussed on these Andhra companies. In fact that is a case for across the board and March quarter as well as June quarters are seen to be quite good. Good growth will be seen in the results of the company because we have only seen that dispatch figure of Sagar Cement having posted a growth of about maybe 37 percent on month-on-month (M-o-M) or maybe 56 percent quarter-on-quarter (Q-o-Q). So, these kind of growth is going to be seen in the March numbers which will further keep the momentum increasing in the cement stocks. Anuj: A word on BPCL where we are seeing big surge now. It is of course double benefit, as a lot of people would say this is a crude price fall and the petrol diesel price cut again shows that the healthy marketing margins are intact but at current levels would you still buy oil marketing companies (OMC)? A: If you want to play on the volatility in line with the crude because now the soft view is building up on crude then you can take a call. But if you see the spurt or surge which we have seen in BPCL in last one month I don't think that the stock deserves a buying now in the stock. Anuj: Any reason and we have spoken about this for a bit, but right now it is almost entire sector play which is taking place. Big surge in all these names, even Sobha, Kolte Patil, all these stocks are doing well. A: Actually, if you just see the spurt in stocks like Sobha and Prestige, because both are not having any kind of presence in Mumbai. In fact, I do not think that Sobha even has a single project, maybe for the Prestige also. I do not see any joint venture projects exsiting. So, I cannot say nearly on the theme of hat TDR which I have been saying for the last 3-4 days would be the reason. But if you just see, actually each sector, we are seeing the sector rotation happening now. In fact, each sector is seen participating and in fact if you see the ground reality also, I may say that there has been increase in the project launches on Gudi Padwa day, about a week back which we have seen in Mumbai and more specially in the central Mumbai in respect to the redevelopment and all that. But I cannot simply attribute that as the reason for the renewed buying or the renewed interest coming in all the real estates across the board. So, it could just be the value buying and people are expecting that with the improved monsoon or with the improved signs seen in the economy and the way we have been seeing sector rotation, cement, sugar, dye intermediates or maybe the other jute products or maybe the automobiles. Probably that could be the reason that maybe 4-6 months down the line, probably this Dussehra, post good monsoon will be seeing the bumper times or very good times returning for the realty stocks. Sonia: I wanted you to comment on some of these white goods makers. Generally, during the summer season, you see these AC, fridge makers, pile on a lot of gains. And in that, Hitachi Home is a stock that really catches your eye, because it has recovered from Rs 1,000 to Rs 1,400 in less than three months. What is the upside looking like there and what is your pick of the pack? A: Maybe you have still 15-20 percent upside seen from here because if you recall when the Holi picks were given by me, I have chosen this as a theme that air conditioner stocks will be seeing, my recommendation at that time was Lloyd Engineering because it was ruling at that point of time at around Rs 220. So, if you really go by this, and actually you still have about maybe a couple of months of summer to be seen. Maybe 45 days in Bombay, but in the northern parts, you still have a couple of months or more than a couple of months of scorching heat to be seen and that should really be seeing pace going on very well for the air conditioner stock. And even the white goods stock also. So, maybe in that pecking order, my preference will be if you want to go with the frontliners, Voltas still have an upside of about 10 percent from here. As I said, 10-15 percent can be Lupin, then second could Lloyd Engineering because people are finding it difficult to buy the expensive stocks which are ruling like Hitachi Home. I am not saying that I am not positive on the Hitachi Home, but then you can add Hitachi Home and Whirlpool as your third and fourth stocks in the order. Anuj: The other space that you have been quite bullish on and in particular Dalmia Bharat Sugar and Balrampur Chini there was minor correction that took place over the last couple of weeks but today of course we have again news on sugar prices globally hitting fresh high or at least surging overnight. From this point do you think these stocks go back to the previous highs and hit even higher highs? A: Difficult to say whether they will hit their previous highs or not but I can say that majority of this company will post record bottom-line and that is what I have been saying maybe for last couple of months and if you go by the reason of this spur seen today Zharnikov which has come out with the report in fact there are lot of mistakes having incorporated by them in the report they have said that India production is seen falling from 30 million tonnes for this current season I don't know who ever estimated the production of 30 million tonnes. Now come on the ground reality the production by ISMA may get released day after tomorrow because generally it happens on the 15 but I am expecting that ISMA figures will get released maybe on Wednesday because tomorrow markets are closed and if you go by the Zharnikov report that 30 million tonne was the expectation it was never that kind of expectation. It was anywhere between 26-26.5 million tonne. And what I am expecting is that ISMA figures which will come day after tomorrow unlikely to be more than 24 million tonnes as on March 31. And you add a production of maybe 6-7 lakh tonne which will be seen coming only from Tamil Nadu because all the mills which were operating in Uttar Pradesh, Maharashtra, Karnataka, Bihar and Andhra Pradesh have all closed. They have all closed the crushing for this. Maybe I am not talking — you can count them on finger, maybe one or two. So, you won't be seeing a production of more than 500,000 tonne. That means 24.6 or 24.7, that means it will be sub-25, number one. Number two, already we have seen the prices hardening. In Bihar, the ex-mill prices have touched. Today, the prices have touched Rs 36 per kg. In East Uttar Pradesh it has touched closer to about Rs 35 per kg. So, this hardening of these prices will keep continuing. I am just focussing on the India situation. Now Zharnikov is saying that next season India probably will be an importer that is again a wrong report they have released. India won't be a net importer in the next season also but production will be seen anywhere between 24 - 24.5 million tonnes. And this will be happening for the first time in India where the consumption will be higher than production because consumption will be now estimated at 25.5 million tonne which will be above 26 million tonne next year. So, these datas are so positive for the commodity prices to go up I won't be surprised to see sugar getting sold ex-mill at Rs 38-39 in the next couple of months.