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Last Updated : Aug 16, 2016 09:01 PM IST | Source: CNBC-TV18

Tulsian: This is what you should be betting on

In an interview with CNBC-TV18, analyst SP Tulsian talked about his views on the market and various stocks and sectors.

In an interview with CNBC-TV18, analyst SP Tulsian talked about his views on the market and various stocks and sectors.

Below is the verbatim transcript of SP Tulsian’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.

Anuj: First, a word on the two big gainers today. Cipla and Divi's Laboratories Limited. Do you think these stocks deserve higher levels even from here on?

A: Two things. First Divi's Lab came out with a good number. So, obviously the stock having corrected in line with the other pharma stock. If you really see the Divi's number I don't think that we have any type of complaint really having seen in the preceding even two quarters numbers. Whether you talk of March quarter or you talk of December quarter. Apart from that no regulatory issues or no regulatory kind of alerts have seen on this stock. So, this is the kind of outcome of that because of the good number, the stock is seeing a good response.

Coming on Cipla if you really see on a sequential basis because the March quarter was disaster, was horrible and the kind of improvement which we have seen in this quarter and the change of guard because actually that has been well received by the market that the management has been very proactive in quickly changing the CEO and have replaced that. So, probably that has raised the new hopes and if you really see Cipla having gone under owned in these last couple of months nobody has really talked on Cipla that qualifies as a good buy.

We have seen that kind of buy call coming on any other stocks like Lupin, Glenmark Pharmaceuticals, Aurobindo Pharma whenever they have all corrected, even on Strides Shasun. But we have not seen that kind of buying call or the confidence having returned on Cipla in this last two months since the disaster number having posted by the company for March quarter. So, maybe because of the combination under ownership change of guard at the top level and sequential improvement having seen, even the better working capital management as seen by the company for Q1 in case of Cipla.

Sonia: I wanted to ask you about the other stock which is Jain Irrigation. 6.5 percent higher today and that stock has been up trending for the last 3-4 four months. Post its numbers this stock has been looking good, management commentary was positive, what is your view now?

A: Two things, if you really see the operating profit having risen by about Rs 35 crore to about maybe Rs 165 crore. I am talking on a sequential basis and that Rs 35 crore exactly got added to the profit after tax (PAT) to the bottom-line. So, that market has really found to be slight interest reduction in that also. I am not too impressed with the management commentary. Management commentary has all along been good for the last four or six quarters. They have been repeatedly talking about debt reduction and all that but nothing significant having seen on that front.

But as I said, the interest, as I said that operating profit risen by about Rs 35 crore, interest liability fell by about Rs 15 crore. So, this Rs 50 crore, straightaway have got added to the bottom-line with a PAT of about Rs 60 crore on a consolidated basis and that has been very well received by the market that yes the indication into the better financial performance has started seeing in and maybe the debt reduction has not happened significantly but the interest reduction of Rs 15 crore on a sequential basis is giving an indication that yes things are moving in that order.

As I said I am not too impressed with the management commentary because you have to rely on hardcore numbers which you have to rely on hardcore number which we have found to be bit impressive this quarter.

Sonia: This was a sector that you have liked for a very long time. At this juncture, the numbers still look good, but the stocks are expensive, what do long term investors do now with names like Shalimar Paints, Kansai Nerolac, Berger Paints etc?

A: You are right and maybe in this last one year if you see, I have been recommending the stocks for last couple of years and they have grown by or they have risen by about 100-175 percent for all the stocks, but if you really see Q2 numbers for all the paint companies are invariably the best, because of the festive demand and all that. The companies start dispatching them by September 30 and this time again Diwali being on October 31; we are going to see the benefit of dispatches to get booked by all these companies in Q2, so definitely Q2 numbers are going to be seen quite good. In fact, Q1 numbers were much better than even then by my expectation, so maybe one can keep a view till for the next couple of months also. All these stocks may rise by about maybe 5-10 percent in the next couple of months, but thereafter the profit booking is not ruled out.

But yes, one specific stock which I want to mention here of Shalimar Paints and if you really see the recent development, the promoters Jhunjhunwala being the chairman of the company and Ratan Jindal, the director of the company. Company has two promoters Jhunjhunwala family and Jindal family, both are collectively holding 62 percent, 31 percent each.

Both have opted not to get re-appointed on the board of the company, so maybe insiders when I had a talk with few people, the insider are taking this as a precursor for the stake sale, because management have categorically stated about couple of years back that yes they are looking to exit from the paint business, because this being an unrelated thing. If that happens if that story unfolds I think there will be a huge value unlocking, but it is just a speculation. I am just trying to connect the dots that two directors are not opting for reappointments or that could just be a beginning in that direction, so this is just a speculative call being taken on the stock, but on fundamental basis also, because Shalimar Paints have consistently being posting the profit for last three quarters, in spite of the other paint stocks showing very good performance, the company has not shown such a good performance, but for last 2 or 3 quarters they have even operationally posting the good numbers. So this is the only stock because there are only very few choices, only 5 paint stocks are listed on the stock exchanges, so this is the only available at a cheaper valuation otherwise I will not advise buying fresh. Those who are holding it can hold for couple of months to see a further upside of 5-10 percent.

Anuj: This is the one stock which had underperformed its peers but now this sum of the parts analysis (SOTP) valuation may be catching up. At Rs 462 is this a buy?

A: If you really see amongst finance, amongst non-banking financial company (NBFC) this is the most underperformed stock because actually if you really ask me the stock has not participated and I won't subscribe to the SOTP method of valuations because that kind of talk is all going on for the ages.

And if you really see the Q1 numbers also the flat performance has all been seen coming in. Actually what the market does not like is that the finance and investment portfolio you suddenly see three quarters very flat and in the last quarter you see the finance and investment sector showing a good amount of earnings before interest, taxes (EBIT) and all that, while this segment should also be having a linear kind of performance every quarter.

So, I won't be taking up too positive call because as you have rightly said if you take a broking and broking having turned into NBFC or maybe any other NBFCs they have all shown a growth of about 30 percent to 80-90 percent in this last 12 months while this stock has remained a laggard. So, maybe continuing with that same trend I won't be taking a positive call on the stock.

Anuj: We discussed this on the day of numbers, but the more Sundram Fasteners has been really fast, how do you approach it now at Rs 253?

A: I won’t be taking a buy call, because at the time of results, yes we have discussed that results are definitely looking good, but you can’t take this industry which can really give the stupendous kind of increase in the margins and all that, because of the product nature of the fasteners, so I won’t be taking I think this is seen the more momentum seen into the stock price rather than the fundamentals, so I will give a pass to or maybe those who are holding it, I will advise going for profit booking.

Anuj: Bharti Infratel -- do you have any sense of what’s happening here. This is really volatile there have been couple of weeks where it had been top gainer, but otherwise in a consistent downtrend?

A: The movement they have announced the share buyback in lieu of dividend since then I have been taking a negative call. In fact, I would say that this is a cheating where you say that I am going for the share buyback, by slashing the dividend by 75 percent and if you really go by the shareholding patterns 70-71 percent held by the promoter that is Bharti Airtel and the Mittal family and 28-29 percent is held by foreign institutional investor (FII). Sometime, I wonder when the FIIs will get annoyed on the stock or if they take a negative view.

In fact, if you see in my view the negative trend of the stock has not seen. In fact, we see the stock correcting it is continuously forming a downward bottom. If you really see stock correct by Rs 30-35 again goes up by about Rs 15-20 so it is showing a weak trend and that indicates, because if you really less than 1 percent is the float held by the retail or Indian investor, so I think this is just the price which is holding on, but if you really ask me considering the flat result for Q1 and in fact I would say that, that may be the mildly negative results and the corporate governance issue.

As I said that share buyback in lieu of dividend was really disaster on part of the management and since then I think at that time I don’t recollect, at that time the share used by rule at Rs 450-460 and since then about 3 months back or couple of months back, since then I have been giving an exit call on the stock.

Sonia: I wanted your thoughts on Power Grid because that stock is coming under some pressure, but the numbers look very strong 30 percent growth top line and bottom line, any thoughts on how to approach this one as a long term investor.

A: I have never liked the debt ridden companies and Power Grid if you really see the PSU with a debt of closer to about Rs 80,000-85,000 crore and I won’t be surprised to see that 1 lakh crore debt hitting and that is rare phenomenon in case of PSU and if you really see the kind of sometime which we say 88-90 percent earnings before interest, taxes, depreciation, and amortization (EBITDA) margin, but this EBITDA you need to knock off the I and D which is very significant.

As I said the debt of closer to Rs 80,000-90,000 crore, which will soon be hitting 1 lakh crore, I agree the kind of capex plan having lined up in the transmission and distribution (T&D) space, if you really take a longer term chart on Power Grid, I think maybe I don’t recollect, I don’t have those data with me, maybe 7-8 years back also the stock used to rule at the same level Rs 150-160 and since then, many people have been talking of taking a long term view, very positive view on the stock, but I have never taken a positive view and I continue to have my neutral view on the stock, largely because of the huge debt of Rs 80,000-85,000 crore with the company.

Anuj: Adani Ports was one of your favourite stocks. It didn't do much since its index inclusion but now this inter party transactions getting cancelled and all it looks like it is a bit of gamechanger. Even as we speak now it is up six percent and in last three or four days it has gained 18 percent. Do you see the stock making a move towards Rs 300 or higher than that?

A: Actually post announcements of the Q numbers where they have also said that the inter-party transactions are going to get reverse and I think the management is given a timeline that in next one month it is going to be done. That is really seen to be a very big game changer and you are right that since its inclusion in Nifty and Sensex the stock has underperformed. If I am not mistaken it has corrected from Rs 330 to as low as Rs 200 but thereafter because of the change in the outlook post this Q1 numbers and in fact the results had been really very good. We had seen the growth in the cargo handling on a quarter-on-quarter (Q-o-Q) basis to about 43 million metric tonne against sub 40 million metric tonne in the Q4.

Apart from that and if you see the cargo terminal handling capacity getting increased at three port at Ennore, Hazira and Mundra or at all three ports but this inter party transaction reversal is seen to be a big game changer and I won't be hesitating in giving a target of about maybe Rs 330 in this calendar year and I expect that that old glory which we used to see for the share at ruling in the range of about Rs 290 to Rs 330 or Rs 335 will seen to be coming back maybe Diwali to December.
First Published on Aug 16, 2016 08:55 pm
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