Tusian Tells: PSBs, pharma stocks of the day

In  an interview with CNBC-TV18, market expert SP Tulsian gave his stock picks for the day and discussed the implication of the Fair and Remunerative Price (FRP) on sugar companies.Below is the transcript of SP Tulsian’s interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18. Anuj: I wanted your thoughts on a news development that Manisha pointed out about half an hour back. The central government fixing sugarcane Fair and Remunerative Price (FRP). If you had any look at that. Rs 230 is linked to basic recovery rate of 9.5 percent and premium of Rs 2.45 per quintal for every 0.1 percent point increase in recovery above 9.5 percent. Would this change anything for sugar stocks? Just wanted first thoughts on that. A: Let us first understand all these FRP is just academics because if you go by the Supreme Court verdict, the Supreme Court verdict has held that all the states have the power to fix statutory minimum price (SMP) and this FRP or whatever has been and this has been every year we talk that this FRP announcements by the central government is just academic which has no relevance. Because if you just go by the sugar production states, there are four or five states – Maharashtra, Uttar Pradesh, Tamil Nadu, Andhra Pradesh. And in fact, each state has their own sugarcane price fixed. We have all seen that in UP it is Rs 280 for the last three years. And now this year, it is talked that it will get raised to Rs 310. Similar is the case with Tamil Nadu, similar is the case with Karnataka and similar is the case with Maharashtra because Maharashtra 95 percent of the sugar mills are in the cooperative sector. So, it does not make any difference. So, this FRP is not obeyed or not applied to any of the mills operating in all these states which contributes about 95 percent of the production. Sometimes, what happens, if you recall, when last year or about six months back, when central government has directed the mills to export four million tonnes which was stocked after 1.6 million only, at that time, they just used these statistics for calculating the cost of production and giving the incentives. So, I would just like to draw the attention of all the viewers that whenever these FRPs gets announced by the central government, just ignore those things. This is just an academic and has no relevance. Anuj: A word on SBI. You were waiting for all the Q4 numbers, now we have the big ones out. SBI has rallied of course ahead of numbers. Today we have seen a bit of a correction from high point and the numbers clearly look quite bad. From here on what is the call on the stock? A: We have to look this numbers, all everything in context and the relative performance shown by the other banks. Now if I just compare this with Punjab National Bank, because that is the immediate comparison, because PNB is one third size of this SBI and there is no other bigger bank than PNB while taking a comparison. If you just take the case of PNB, the provisions which PNB has made is Rs 10,500 crore in Q4 against Rs 3,700 crore in Q3. And what SBI has done a provision of Rs 13,000 crore against Rs 8,000 crore in the previous quarter. This is the situation. Now, come on the gross non-performing asset (NPA). Rs 56,000 crore PNB has and SBI has Rs 98,000 crore. Again risen from Rs 73,000 crore.to Rs 98,000 crore. But in case of PNB, it has risen from Rs 34,000 to Rs 56,000 crore. Similar is the case with net NPA. PNB risen from Rs 23,000 crore to Rs 35,000 crore and SBI risen from Rs 40,000 crore to Rs 56,000 crore. That means Rs 16,000 crore increase and in case of PNB it is Rs 12,000 crore increase. So, I do not think because when you see, when the market has given a thumbs up to all the banks, in fact whether you call it a Bank of India, in fact Syndicate Bank was an extreme surprise when in spite of the howler numbers, the market has given a thumbs up and we have seen the stock moving to 8 percent because on one hand, the analysts say that okay, everything has got booked and there has been nothing left in the system. So, I am neither accepting this argument nor going by the technical factors like sudden jump which we see in the share price after declaration of the results. But the classic case, because if you take the deposit, Rs 4,12,000 crore deposit, Rs 14,64,000 crore advances for SBI. So, with these kind of advances, if you have almost similar to the having shown the provisions, gross NPA, net NPA, I do not think that why there should be any kind of disappointment on the SBI because this is nothing different than what has been posted by, I am referring in case of four bigger banks, that is Bank of India, Bank of Baroda, PNB. Canara Bank is yet to declare the results, who will be declaring the numbers today. So, I will not be calling it as a very big disappointment, this is very much in line, but if you take on a relative basis, SBI has not disappointed. On the contrary, it has given a positive surprise.Anuj: First thoughts on Canara Bank? A: This you will call bad numbers because if you have the bottomline in negative and that too we all see the net loss, but we forget to take the net loss before tax because whatever tax credit we are seeing is all deferred tax and it is a miss to take the net loss. In fact we should take the loss before tax which are seen quite high. And see the increase in the net NPA, gross NPA kind of provisioning. That is what we were discussing that this same kind of norms. And I will not be surprised that immediate reaction in Canara Bank has seen negative, but maybe next couple of days, again when the analyst will start taking a call that everything has been factored in. Now nothing remains in the pipeline, you will see the stock recovering back. So in the background, what I have just now said for SBI, if you compare SBI and Canara Bank, you will find SBI is excellent and Canara Bank has a very ugly and big howler Anuj: You have been extremely bullish on this stock for as long as from Rs 500-600 levels, but at Rs 1,000. Is it still a good buy? A; In fact I will advise now to go for the profit booking because if you see the Q4 numbers, Q1 numbers are going to disappoint. And I do not think that maybe by then the prices can really sustain to these levels. I will not be surprised to see the share the correcting to a level of Rs 915 because if you really see, Q2 and Q3 are always the best quarter for Asian Paints and maybe yes, things are because of the monsoon, because of the discretionary spend, rural income and all that, things are going to improve, but that is not going to get reflected in Q1. And if you have that results in between, I think the market is going to see some kind of profit booking and as such the stock has risen quite a lot. So, at Rs 1,000 profit booking is advised and I will advise to go long. I will not be surprised to see the share correcting to a level of Rs 960 in this series itself. Anuj: Maybe a time to revisit SBI. At Rs 190, is it a buy for you from a long-term investment point of view?A:I will not be taking a long-term call, but if you really want me to pick and choose any two or three bank stocks amongst the PSU lot, I will probably go with SBI, Union Bank and IDBI Bank. Honestly after reviewing the results because only the Indian Overseas Bank (IOB) results are pending amongst all the 24 PSU Banks, 23 results are already in front of you and the kind of disappointment which we have seen. So, if I need to pick three or four, that too from this month’s point of view, SBI, Union Bank, IDBI and fourth could be Bank of Baroda because the kind of correction which we have seen in the stock having taken place, but overall I am keeping the positive bias on the PSU banks, purely from a technical point of view, because if you recall the expiry which has happened yesterday, was seen huge shorts and everyone went short on the anticipation of the poor numbers. And we all knew that the results would be out by May 26 and that was the effect we have seen. So, maybe for this June series, I will not be surprised to see all PSU banks giving you a gain of about 8-10 percent on a technical position point of view. Anuj: We have now numbers from all three companies IOC, HP and BP. Your thought on IOC first? A: I have to see the numbers, but as you have said you are right because IOC is controlling about may be 55-60 percent of the market share, while the other two company HPCL and BPCL are controlling about 20-22 percent of each. 27,000 outlets of IOC but one has to analyse the numbers because we have seen all the numbers in front of us. GRM, if I just take the case of GRM on a yearly basis because there is no point in taking a quarterly GRM of these companies. HP and BP both have posted a GRM of USD 6.6 and USD 6.66 you have to analyse in fact, all the numbers but always a preference will go for HP and BP because if you take a call now all these refineries you have in front of you, it is ruling at a PE multiple of historic about 7 times we have discussed on a Chennai Petro a while back that is ruling at a PE multiple of 4, so you have to take a call accordingly, but HP and BP will always be preferred over IOC. Anuj: A word on pharma stocks. It has been a big surge for Sun Pharma and it has taken along a lot of other pharma stocks as well. I know you prefer Wockhardt Limited in the broader market but in the large cap ones what would be your top pick? A: If somebody wants to play in this series it has to be pharma and PSU bank because I am not confining only to Wockhardt. Wockhardt is a choice from a US FDA angle which I have been saying that sword has hung over them about two years back and it is time now for Redressal. But if really want to take a call probably I will be very positive on Aurobindo Pharma, Glenmark Pharmaceuticals, Lupin, Wockhardt Limited, all the big one. And this series is going to see the buying coming back in pharma and I don't see any reason. Maybe one has to wait for the results of Aurobindo to come on 30th but I am keeping positive stance on all the pharma stocks from this series. In fact the theme for this series have been PSU bank and pharma for me.