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Last Updated : Jul 19, 2016 07:17 PM IST | Source: CNBC-TV18

Tulsian's take on Exide Ind, PSU banks & power transformer cos

SP Tulsian in an interview to CNBC-TV18 shares his views on power transformer companies and why he prefers avoidiing public sector banks for now. He also shares his take on oil marketing companies and specific stocks like Exide Industries.

SP Tulsian in an interview to CNBC-TV18 shares his views on power transformer companies and why he prefers avoidiing public sector banks for now. He also shares his take on oil marketing companies and specific stocks like Exide Industries. 

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

Anuj: First a word on Bharat Bijlee and if you track the numbers and the fact that stock is down 10 percent as we speak?

A: Numbers have really disappointed and I think that has come largely because of the lower sales. If you see that two numbers first of the Q4 and prior to that of Q3 they effected the sales of about maybe Rs 170 crore and Rs 195 crore. While in this quarter the sales fell to Rs 130 crore. In fact, I have been keeping my positive view on all the transformer makers and prominent amongst them on which I have been giving the buy call for last maybe couple of months and the theme was that the T&D capex which we have been seen from the company like Power Grid who are the leader in that space Rs 400,000 lakh crore capex plant for the next 5 years that consumes a lot of space, but actually the management commentary or there has been no clarification from the management for such a drop in the top line. If the top line would have been Rs 160-165 crore which is seen at its average then also you would not have seen the bottom line in the red and then any incremental revenue if the profit because the operating leverages are very high for the company and if they would have been able to effect a sales of about Rs 190-195 crore you would have seen an EPS of about Rs 10.

So in this background one has to really closely watch the results of the many other transformer makers those who are in the similar space, though Bharat Bijlee is a bigger player but if you really want to you need to take a call and keep an eye on Voltamp Transformers, Transformers & Rectifiers and maybe one company Indo Tech Transformers, which is a GE subsidiary having 75 percent stake, so I will be keeping my close watch on the results of these three companies also to take a call that what went wrong for all these transformer makers in this Q1, but yes Bharat Bijlee results were really big disappointment.

Sonia: What did you make of the UltraTech Cement numbers, the margins were very strong at 22.8 percent, but do you think these margins are sustainable given that petcoke prices have risen substantially.

A: In fact, all the cement companies are expected to post the robust numbers, so I won’t be too surprise or too enthused that they have posted the exceptional numbers and yes coming on the petcoke you are right that the kind of increase which we have started seeing in, because if you see the UltraTech number they have shown the quite a good improvement on the power and fuel front, the efficiency has been seen on that expense, but otherwise on the freight and all that you have not seen any kind of efficiency coming in by the company, but going forward the kind of monsoon, the setting of the monsoon and the prediction of maybe 150-130 percent monsoon or 175 percent of the monsoon having predicted in many pocket of the country like Vidarbha has seen a prediction of 170-175 percent, so definitely this Q2 numbers will be seeing the lower off take.

I am not worried on the pricing front that maybe the prices will fall, even if it corrects by about Rs 10-15 to match the demand and supply so Q2 will definitely be disappointing and in fact sometimes I am unable to understand that if you are an institutional investor, if you are a long term investor and if you are an ultra HNI then you need to have these types of expensive stocks in your portfolio, because if you see the present situation of the company the debt is closer to about Rs 6,000-6,500 crore and once the deal gets finalised with the JP Associates which will happen in the next six months or so, they will be assuming another debt of maybe about Rs 9,000-10,000 crore and that will be seen as EPS decretive also. So even if I expect an EPS of closer to about Rs 120-125 for FY17, I think the stock is looking quite expensive even on an earnings multiple or maybe even on EV to earnings before interest, taxes, depreciation, and amortization (EBITDA) basis, so I won’t be saying that this is a screaming buy now or maybe even buying by the traders for the time being, because I have been saying this for last one week or so that I am keeping now cautious view on the cement companies going forward, largely because of the lower off take to be seen because of the heavy monsoon having set across the country and Q1 results have already seen got over largely factored or maybe the share prices have run up beyond the expectations of good results to be seen from many of these companies and as such the value lies in the smaller cement space rather than this larger one, because Ultratech is seems to be the most expensive stocks on an EV to EBITDA basis if you compare it with any other cement company in the space.

Anuj: A word on Exide Industries as well. The numbers look quite decent, of course, the stock has rallied but at current levels what’s your advice on the stock?

A: I am positive on the stock because as you have right said we have seen the operating profit rising by about Rs 50 crore and I won’t be surprised to see because if you see the lead prices there has been a fall of about 5 percent in this Q1 of FY17, but going forward also I am seeing that probably the inventory management will be seen quite good on part of the company and they have been languishing at an EPS of closer to about Rs 7-7.5, but I won’t be surprised to see the company posting an EPS of closer to about Rs 10. It may not be able to hit the bulls eye of Rs 10 figure, but it will be anywhere between Rs 9-10, but I am impressed with the numbers because the turnover having crossed Rs 2,000 crore, operating profit having risen by about Rs 50 crore on a sequential basis, so taking all this into account I am in fact quite impressed with the numbers and even if you go by the multiple also as I said that it is ruling at a PE multiple of less than 18 because if I am expecting the EPS to be anywhere between Rs 9-9.5, the share is ruling at a PE multiple of 18 which is not very expensive, so keeping positive view on Exide going forward.

Anuj: You were very bullish on PSU banks for the series that was your big call that will have a huge move in PSU bank that’s happened, is it time to book profit now?

A: For large couple of days I have been advising that yes booked the profit, exit from these banks because if you see the kind of run up which we have seen, take the case of PNB risen by more than 40 percent, take the case of Allahabad Bank risen by more than 33-34 percent and if you see the two banks PSU banks sometime I am unable to understand why should they be in the F&O banned that is Canara Bank and Bank of India. If they are in the F&O ban then both are doing well otherwise in other stocks we have been seen this profit booking, so yes I am in fact expecting a massive profit booking to come in ahead of this expiry. We have one week still maybe left for expiry or maybe 7 trading days, so I am expecting that these stocks can correct, because there is no reason, though I have given a bullish call with a view that they can rise by about 15-20 percent, but as I said they all have risen from 25-45 percent and I honestly don’t see any reason even if you consider better Q1 numbers or you consider the recapitalisation having infused by the government into these 13 banks, so yes cautious view ahead and as I said that the technical factors in two banks are working in favour of the up move or in favour of the bulls that is Canara Bank and Bank of India, but otherwise if you have been holding as an investor or as a trader book profits in all the PSU banks.

Anuj: What about oil marketing companies, we are seeing again a huge rally in some of these stocks so do you want to pick any of the three stocks at current levels?

A: If you recall maybe about week to 10 days back on a relative basis I gave a call on Chennai Petro because if you really see at that time I have said that Chennai Petro is ruling at a PE multiple of 4-5 the only lacking is that they don’t have their retail outlet, but they have a very good refinery with a high complexity and capacity of 13 million tonnes and Chennai Petro has risen by about 10 percent or so in this last one month, but I am not comfortable now on this oil marketing companies, because you cannot give a PE multiple of more than 10 to these stocks and the kind of valuations which we have been seen now for allIOC,BPCL maybe IOC is looking undervalued in terms of the outlets because they have about 28,000 outlets and the petrol pumps against the 11,000 of both the BPCL andHPCL, but I won’t be taking a positive call on all three oil marketing companies going forward from the current valuation.

Anuj: You had recommended profit booking at around Rs 130 but at current levels is it a good buy again?

A: We gave a buy call at somewhere around Rs 55-60 and we started giving an exit call at Rs 125-130. If you see the developments where the ICICI Bank has invoked the promoter stake share and they have been seen selling the shares in the market. Unless and until you have the confirmation that Q1 numbers are also going to be seen on the lines of the Q4 also then only you can be confident but even taking all this into account I don't think that you have upside potential. Whatever momentum which you have been seeing in this stock is purely unsustainable movement and I won't be advising any type of buying recommendation now at the current level.

Anuj: Is PVR good at Rs 1100?

A: I was not convinced at the level of Rs 950, so there is no question of getting me convinced at Rs 1100. I have heard you saying that 12 blockbusters and this is the phenomenon every year. Every year you have 6-10 or 8-12 blockbusters then why you have Q4 losses which you have seen in case of PVR for Q4 FY16.

If Rajinikanth is god for the viewers of Rajinikanth fans then you can have the effect of that seen may be for a week or so not for six weeks or eight weeks or ten weeks at least in Mumbai and Maharashtra. So, I won't be keeping a positive view. This is just a euphoria which we have seen building up. If this would have been Tamil Nadu then the situation would have been different.
First Published on Jul 19, 2016 05:49 pm