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Last Updated : Jun 01, 2016 01:27 PM IST | Source: CNBC-TV18

TVS Motor looks interesting after correction: SP Tulsian

Purely from an investment point of view, I don‘t think that there is any worthy call to be taken for purchase of Coal India shares, says Tulsian

In an interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy, SP Tulsian of sptulsian.com shared his outlook on Coal India, and stocks in the auto sector.

Below is the verbatim transcript of SP Tulsian's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: Coal India -- yesterday we had Anil Swarup with us. We could play some of his bytes yet again but he told us that the amount of auctioned coal is going to go up sharply, also, very confident about increasing productivity in the company. Is there anything in that stock that we should be bullish about?

A: Two points I have seen positive for Coal India -- one is increase in the auction contents and second is coal washery. Coal washery can increase the productivity, auction allocation or increase of the auction quantity can give them higher realisation. However, I don’t think now the problem is of availability of the coal. There is lack of buying interest in the coal quantity. Yes, the marginal increase in the realisation can be seen for the company but we have to stick to the production more for the company and whether they can meet the given target for FY17. I don’t think that the public sector undertaking (PSU) tag or the offer-for-sale (OFS) expectation in Coal India, which will be coming in FY17 can allow the shares to move up further.

So purely from an investment point of view, I don’t think that there is any worthy call to be taken for purchase of the share.

Sonia: The other big theme to watch today is the auto sales. The trend is expected to be positive but from the entire bunch, even some of the tractor makers etc, what is your top pick now?

A: We have to keep a watch on two-three interesting auto sales numbers. If I come on the tractor sale, Mahindra and Mahindra (M&M) and Escorts will remain on the watchlist but I am expecting that M&M should continue with the sales number of more than 20,000. That is number one.

Number two, if you see Atul Auto -- smaller companies have also disappointed because of the taxation issue for the month of April where the sales were half. So that has to be kept a watch on.

Third is Force Motors. Again the disappointment was seen in the company for the month of April with the sales seen at around sub 3,000 while they have been showing that to be closer to 3,500-4,000. So that will again be an interesting thing because the kind of valuation and the kind of participation, which we see from the people in Force Motors will be very interesting.

Next will be SML Isuzu. It always posts excellent numbers for Q1. They post the sales of about 1,500 vehicles for April, May and June but in the month of April, already they have posted sales of 1,400, I am expecting that momentum to continue for May and June because come July, the sales falls in three digits, maybe to 900-950 or maybe 850 to 1,000. So SML Isuzu will again be very interesting because if they post a number of closer to 1,500 vehicles, again all the eyes will be set on Q1 numbers. The company may be able to post an earnings per share (EPS) of over Rs 20-22 because everything gets reflected to the financial results.

Yes, the leading ones like Ashok Leyland better sales growth, Maruti numbers again better sales numbers because of the introduction of new models, I am not too excited for Tata Motors looking to the April sales numbers because the domestic sales figures are released. M&M passenger vehicle segment is going to remain dull.

Coming on two-wheeler, I think if you take a call on Hero Moto, Bajaj Auto and TVS Motor, my eyes will be more keen on TVS Motor because the kind of correction that we have seen in the share price in last two-three days may indicate that they may show sales of closer to about 2,20,000 vehicles. If it exceeds beyond that then yes, it will again be an interesting play.

Overall, you have to keep a 360 degree perspective on all, two-wheeler, passenger vehicles, tractor and all sort of auto sales numbers.


Latha: As you start paying more for pizzas and all for a whole lot of perishables, do you think this consumption stocks will get a bit of knock?

A: I don’t think so. Sometimes we start taking the extreme analysis also. It is not that 15 percent tax has been imposed now, it is getting raised from 14.5 percent to 15 percent, that is by 0.5 percent and I don’t think that one should be taking it to too extreme.

I agree that consumers will be asked to pay more but this is having a CENVAT credit. It is not like a Swaccha Bharat Abhiyan where you don’t get that CENVAT credit of half percent paid. Maybe the companies which are paying it will not get affected, yes, the consumers maybe.

So even if the people those who are selling their products, if they get their credit, the effective passing on of that burden will not be there so much on the consumer and I don’t think that half percent is so material and that too with a background with a Krishi Kalyan Cess if we can make the agriculture to grow.

When the education cess was imposed of 2 percent which later raised to 3 percent, we all received it very well. So if it is for the Krishi Kalyan for agricultural growth and in the current situation, it is warranted, I don’t think that this will be seen such a big negative.

Sonia: We were having this discussion yesterday about how the top gainers in the month of May were companies that have done well this earnings season whether it is Asian Paints or Bosch or HDFC or a couple of others as well like Larsen and Toubro (L&T), 15-20 percent gains there. If you had to pick one heavyweight to bet on for the next three-six months, which one would it be?

A: Difficult to give one name but if you want me to pick any one then probably I will go with Sun Pharma or with TVS Motor because the kind of beating which we have seen, it is very essential to look for the stocks, which has not risen much.

I cannot take a call now on Asian Paints or maybe L&T or maybe Tata Motors for that matter. However, the kind of upsurge we expect from Sun Pharma and TVS Motor, either of that can give good returns with a view of 4-6 months.

Sonia: How much more juice is left in some of these oil marketing companies (OMCs) you think? People have made a lot of money both last year and this year but at Rs 1,000 for a stock like Bharat Petroleum Corporation Ltd (BPCL), do you think there is still a lot of value left?

A: Maybe the share price can move up but that can only happen with the price to earnings (P/E) expansion. I don’t think that you can expect the earnings to grow up. If you see the Hindustan Petroleum Corporation Ltd (HPCL) having posted an earnings per share (EPS) of about Rs 140-145 on a consolidated basis or maybe BPCL an EPS of Rs 110, I am not putting Indian Oil Corporation (IOC) in that category because of the dismal number having posted by the company with very low gross refining margins (GRMs), almost 40 percent lower than what has been posted by BPCL and HPCL because BPCL and HPCL both had a GRM of about USD 6.5 to USD 6.6 and I don’t think that GRM expansion can happen.

Similar is the case with the marketing margin because now you see that marketing margins also having stabilised. They don’t have to incur any losses or they don’t get any gains out of that. So maybe the earnings will not expand beyond that but can you give a P/E multiple of double digit? I have my doubts because looking at the Chennai Petro looking at a P/E multiple of 4 and BPCL, HPCL ruling at a P/E multiple of 7-7.5 -- even if FY17, I am expecting the same kind of EPS, maybe the EPS expansion can take move up these share prices otherwise both these shares will move in this range of about plus or minus Rs 100 for both HPCL and BPCL.


Latha: Chennai Petro has headroom you are saying?

A: Yes because there P/E multiple is sub 4 times while HPCL and BPCL have a P/E multiple of 7-7.5 to 8 times. So, I don’t think that you have much room there. In Chennai Petro, yes, there is ample room. Even if it expands by about 20 percent P/E multiple goes to 5, you have 20 percent growth for the share to rise from hereon.

The Ennore Regasification plant will come after FY17 because they have two refineries and the advantage with Chennai Petro is that they have the most complex refinery -- two refineries, one of 11 million tonne and second of half million tonne but the pipeline which you are referring to only flow the benefits in FY18 and not in FY17.

Sonia: The strength in M&M has been very good ever since the month of April, it has moved from Rs 1,100 and now at more than Rs 1,300, almost Rs 1,350 now. You were talking about it a while back. For a long-term investor does M&M still beckon a buy or would you think that there are other options because over the last 12 months, it has not given any returns?

A: Difficult to say for the long-term because I don’t think that people have that kind of mentality or that kind of time view but as I have been repeatedly saying for last one month that yes, April, May and June we will be seeing the excellent tractor sales numbers from the company.

Coming on to negate the diesel ban vehicles also they are going into the petrol version, so I am not too disappointed for that also because one has to keep an eye on the tractor sales numbers for the month of May, which will be seen either today or tomorrow.

We will be seeing 20,000 or more for tractors and closer to about 40,000 for passenger vehicles. Once those things comes in, I won't be surprised to see the share moving closer to about Rs 1,400 but yes, this stock seems to have good support at Rs 1,300 but take a target of Rs 1,400, which can be seen in the next one month on expectations of these sales numbers.

Latha: Now that the result season is over, each day we asked you for the numbers of the last 24 hours but now you have a bird's eye view of all the numbers that you track very closely, what should we take away from the earnings season in terms of individual stock performance?

A: Two sectors have stood out very well, one is sugar and second is of the transformer maker.

If I keep giving the list of the stocks, that will be a very long list because only in last 48 hours at least I must have identified 20-25 stocks which can be seem quite investment worthy.

I continue to have my positive bias on the sugar sectors mainly the UP based like Balrampur Chini, Triveni Engineering, Dalmia Bharat and Dwarikesh Sugar.

Coming on the transformer side, the kind of performance which we have seen from Voltamp Transformer, Transformer and Rectifiers and Bharat Bijlee.

Coming on the performance of the individual stocks like Hydro S&S, which is a Kingfa, if you see 15 percent topline growth but 44 percent increase in the operating profits.

Similarly, Subros, it has nothing to do with the results but resumption and the bottoming out of the stock having taken place.

Revathi Equipment which has again come out. I am referring the stocks which have not been discussed or which have not seen much having participated in this rally.

Next could be Kopran which have shown the consolidated operating profit, showing a growth of 200 percent on quarter-on-quarter (Q-o-Q) basis.

So these are few of the ideas maybe amongst the auto ancillary, FIEM Industries is looking very good. Pricol in the auto ancillary space.

Sonia: What is your thought on Britannia? It was mired in a bit of controversy over the last one week because these additives in making of bread etc but stock has put all these allegations behind it. It is up about 2 percent now. For the near-term?

A: I think the stock looks good for the near-term because even if you take this controversy, I don’t think that if the companies like Britannia have to comply with the revised guidelines, they will do that. They can always phase out the potassium bromate and iodine, which is causing the controversy.

So I am not too worried on that front because even the Food Safety and Standards Authority of India (FSSAI) has said that the timeline will be given to them. Now maybe the packing material and all sort of things has to be changed but I think taking all these factors into consideration, Britannia seems to have bottomed out and maybe with this expiry view for this month's series for whole of this month June, you can take a position for a gain of about four-five percent from the current level.

First Published on Jun 1, 2016 09:41 am