Sugar stocks too sweet to buy? SP Tulsian analysis

In an interview to CNBC-TV18 SP Tulsian of sptulsian.com shared views and outlook on stocks across various sector like Mahindra Satyam, Berger Paint and Sesa Goa.

Meanwhile, he said that the government is quite worried about the sudden spike in sugar prices. Retail price of sugar is between Rs 38-40 peg kilogram, which is an alarming situation. Tulsian expects the government to take steps like ban on exports of sugar. "They can also take a call on estimated production for the coming season and physical inventory." Sugar production is likely to fall in the coming season, but this would be profitable for all sugar mills because when production falls, prices are hardened, he added. Below is the edited transcript of Tulsian's interview with CNBC-TV18. Q: What did you make of Mahindra Satyam’s numbers? A: The numbers are good. The company has delivered what the market was expecting. It is comforting to see the increase in operating profit margins and that will sustain going forward. Q: How would you approach the entire sugar pocket now after the kind of spike that you have seen in sugar prices? A: In the season going forward, there is going to be a drop in the production. I don’t know whether we will be able to take a call of 23 or 24 million tonnes because the estimates now are hovering at around 24 million tonne for the season starting in August. This has happened because of fall in global prices of white sugar to about USD 610 to 615 per tonne. Domestic prices have also become quite attractive. The realizations in UP is about Rs 34.50-35 per kilogram, this is similar to realization made by the south based sugar mills, who are actively into exports. The only comfort is that sugar is not going out of the country and domestic prices are quite attractive. But going forward, the government is quite worried because spike seen in prices moving as high as Rs 40 per kg in the retail, it is hovering between Rs 38-40 per kg. That will be alarming situation. I am expecting the government to take some steps soon. It might be like ban on exports of sugar, taking call on estimated production for the coming season and physical inventory. There is lot of confusion with respect to physical inventory also because on paper we are seeing higher inventory held by mills while in reality it is quite low. This is because many mills have sold sugar by taking court orders, which are not reflected. Overall situation looks quite grim. This situation is going to be quite profitable for all sugar mills because whenever there is drop in production, prices harden. Q: What did you make of Berger Paint numbers and how would you approach that stock now? A: Good numbers but in general all paint companies have posted good numbers. All the top three Asian Paints, Nerolac and Berger Paints have posted good numbers. These stocks are ruling at a PE multiple of 20 plus. Berger it is ruling at a PE multiple of Rs 234. Inspite of that, one can expect a trading bump of about 5-6% in next one month or so because generally we see profit booking coming back into the stock at Rs 145, which is a very strong resistance for the stock. Q: How would you approach something like Sesa Goa now after the news of that Goa stamp duty amendment? A: I won't be taking those news too seriously because from here on the company will be emerging as a big giant with respect to natural resources like crude, iron ore, aluminum, copper and Zinc because of the merger of entire Vedanta group. The enlarged avatar or may be post this merger and consolidation the stock will emerge as a very strong player in that space. Volatility in commodity prices will help the company to post good numbers. In the shorter term we may have pains of metal image attached to the stock.