Tulsian's views on Jindal Steel & Power, Maruti Suzuki Q4

SP Tulsian of sptulsian.com in an interview to CNBC-TV18 spoke about the fundamentals of stocks and sectors like power, steel, automobiles, with special focus on Jindal Steel & Power and Bharat Bijlee, and fourth quarter earnings of Maruti Suzuki. Below is the transcript of SP Tulsian’s interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18. Anuj: A word on the story that we are flashing right now. Any comment on either Jindal Steel & Power (JSPL) or JSW Energy? A: I think this deal had to happen maybe about a month back because if you recall that was very much speculated in the media that this deal is going to get executed. But I am actually worried more on the valuation, because if you talk to the people, those who want to monetise their assets, they are all looking for a valuation of anywhere between Rs 6.5-7.5 crore per megawatt. So, looking to the 1,000 megawatt capacity which JSPL is looking to divest or monetise, actually this power plant which they are referring to is having huge land also. And that land is also commanding a good valuation. I do not know about this Rs 4,000 crore is a cash component, how much debt will get assumed by the JSW Energy or maybe the Sajjan Jindal Group. In fact, that is very critical. So if the deal is happening below maybe at an enterprise value (EV) of about Rs 6,000 crore or less than that, this will be taken as a disappointment because as regards power purchase agreement (PPA), I do not think that that should really be such a big problem because going ahead, if you have the operational this one, and with the Ujwal Discom Assurance Yojana (UDAY) scheme coming in, all the Discoms will be requiring huge quantity of power again, because actually if you see, why the Discoms were not lifting the power, because they were not in the good financial health. But once this UDAY scheme is in place with Chhattisgarh also having signed the UDAY scheme, this power purchase agreement will not carry any premium but I will be looking for a valuation of closer to anywhere between, on an EV basis, anywhere between Rs 6,000 crore and Rs 6,500 crore, that is very critical because if you see the JSPL, they are presently have a debt of Rs 45,000 crore on a consolidated basis and that is very critical for them to liquidate that and if they keep monetising the power assets on a Rs 4 crore per megawatt, that will be seen quite disappointing and this will be a steal for JSW Energy if they are able to get this power project for Rs 4,000 crore on an EV basis. Anuj: A word on internals of Maruti and if the stock has further room for rally from here on. It has already seen quite a bit of short covering today. A lot of people were short ahead of the numbers, but going forward, how would you approach Maruti now? A: If you, on analysing these Q4 numbers, I am highly impressed on all parameters, because firstly, if you see, the company has shown the lower sales for this quarter at 3,60,000 against 3,74,000. I am referring quarter-on-quarter (Q-o-Q) and if you see the EBITDA margin has improved by 95 basis points. But I am more, if you go by the operating profit margin, that has also increased in the same proportion, because if you knock of the depreciation from EBITDA, I am working out that operating profit to those levels. And if you see this situation, I would say that practically, the entire street has been negative on the yen strengthening and that is rightly so also, because if you see 15 percent raw material comes in the Japanese yen. Then you have the royalty payment and all that and in spite of the volume, you are decreasing by about 4 percent, you had Jat agitation. So, what is the actually the best efficiency and the best operating ratios management has seen in these Q4 numbers. Going forward, though the company does not give the guidance on the profitability or on the volume, but if you see, maybe on the passing references when they have said that they are looking for double digit growth while Society of Indian Automobile Manufactures (SIAM) has given a growth of about 7 percent for FY17 and definitely they will continue to maintain that kind of position. And I will not be surprising to see their market share going up to close to about 49-50 percent, again will get increased by about Rs 100-150 basis point in this financial year. So, I am highly impressed. It is not the only thing. You should see the Q1 numbers but if you whatever apprehensions we had on the currency on the margin fronts, they have all belied the expectations of all the analysts in this Q4 numbers. So, I am highly impressed and I continue my positive stance on the stock and I will not be surprised to see a price of maybe Rs 4,500 in the next couple of months on the stock. Sonia: The other stock I wanted to talk to you about was one of your own picks earlier, Bharat Bijlee. If you pull up an intraday chart, that stock has hit a new high today at Rs 1,026 and the stock is up almost about 6 odd percent. For someone who has perhaps missed out on this rally, would you still advice buying it? A: I have advised when I saw the Q3 results and I you ask me that those who will not buy now probably they will miss this time, because if you see on May 12, the company is going to declare the results. Now let me just give you a passing reference again here. Yesterday, Shilchar Techno, a very small transformer company, if you recall, one week back, I have given a huge positive call on all transformer makers including Transformers and Rectifiers. As I said, yesterday we have seen Shilchar Technologies having posted an EPS of closer to about Rs 28 for FY16 and today, we have seen the stock moving up by about 13-15 percent. Now come on the Bharat Bijlee. They will be declaring their results on May 12. Now, if you really see the performance, Q3 was phenomenal. In fact, that was the turnaround and if you see on May 12, the notice which the company has issued to the exchanges, they also have on the agenda the consideration of dividend. The dividend will come back maybe after three years. Maybe there was a gap of about three years on dividend. So, maybe that will be seen considered by the company again and this is the prime and the oldest company being a leader in the transformer space. So, yes, I am expecting again Q4 numbers. I have not taken an estimated call on the expected profitability, but Q3 which was a blockbuster number is likely to get surpassed maybe in Q4 and that is what my expectation. So, very positive view. I will not be surprised to see the price of Rs 1,200-1,250 also. Obviously, one has to take a call on Q4 numbers which I am expecting it to be robust. But otherwise also, looking to the transformer industry I am keeping a price target of Rs 1,200-1,250 in the next 3-4 months. Anuj: When this series started, you had said 8,100 on Nifty Futures. Do you still maintain that? It is just about 100 points from there now on the futures and what next for the May series? A: I maintain my 8,100 on Nifty Futures. Maybe if I miss, it will be about 45-50 and I do not regret that because when the whole street was taking a negative call, when people have been giving 7,550 and all that, I will not regret even if I see a level of 8,050. We have already seen 8,000. And mind it, 8,100 was given when the series had just started or it was not started. And again, coming on May, at that time I have said, or maybe about a couple of weeks back or so, I am cautious on May, because generally if you go by the historic things, May and October are always the dull months for the markets and I do not see this this time it is changing on that also. So, yes, maybe May would be a little negative or maybe a little soft, but again for May, I will not be seeing the Nifty Futures breaching below 7,700. So, this is the outlook for remaining couple of days of April series as well as for May series. But, yes again June is again of five weeks where I probably will be keeping a very highly positive view on the June series but allow May to pass two weeks and then we will take a call on June series.