Cautious on Tata Motors; short Opto Circuits, HDIL: Tulsian

In an interview to CNBC-TV18 SP Tulsian of sptulsian.com shared his reading and outlook on various stocks and sectors.

With regards to Tata Motors he said, 'I will keep a cautious view and will not keep my long positions open for tomorrow."
'Fuel subsidy reform only answer to high oil import bill' As shorting candidates in the Futures and Options space, he recommends two stocks Housing Development and Infrastructure (HDIL) and Opto Circuits. Below is the verbatim transcript of his interview on CNBC-TV18 Q: Your first thoughts on National Mineral Development Corporation (NMDC)? A: They were bad numbers and if I make a rough calculation. I don't think that that Earnings before interest, tax, depreciation, and amortisation (EBITDA) will be more than Rs 1,370 crore, giving an EBITDA margin of 67.9 percent. Otherwise also, if you really see the kind of performance, which we were expecting from the company when the iron ore shortage is there all across the country and Q3 is always seen as a good quarter for the company. I don’t think that these numbers are really very good. The market was already expecting subdued numbers and the pruned down expectations of the profit after tax (PAT) was at about Rs 1,350 crore, which has come to about Rs 1,293 crore, so definitely disappointing number. If the company is not able to do well in Q3-Q4, you cannot really expect this kind of numbers to cheer the market. Q: DB Realty has been tanking two days in a row. How would you approach DB Realty now? You were talking about finding a level at which one could buy into it, but do you think with the way it is falling it is a prudent thing to do to catch a falling knife? A: Yesterday we had discussed I said that Rs 95 is seen as a good level to make an entry because yesterday it was hovering at about Rs 100 or so. I don’t see any reason for the stock to correct so much except maybe for the sentimental reason. Because even if you take the worst case scenario, the alleged allegation of the nexus of the public prosecutor and the promoters of the company, I don't think that one can really expect so much to reflect on the share price. Especially, since we have seen at its worst time share has held on the level or the support of Rs 65 and now you get to see a price of Rs 85-86, for the stock definitely I won’t accept these kind of deterioration on the valuation front. If you recall, about 3-4 months back, we have seen the large investor entering into the stock and if those investors start taking a negative call and for some reason, if they start exiting then you cannot really take a technical or a fundamental call. Infact that kind of exit we have seen in some of the stocks like Shasun Pharma and all that where the stock have corrected by 50 percent. So whenever the large investor starts exiting, the other classic case was of Orchid Chemicals, the same set of investors, which are being talked for this company also. So if they are exiting from the stock then I don’t think that you can really take a call till they completely move out of the stock. Otherwise, on a pure fundamental-basis knocking off the expectation of the selling by the large investor, I will definitely be advising to buy the stock. Q: What are your thoughts on Tata Motors? It is coming out with numbers tomorrow. There are concerns that maybe the domestic business might not be as spectacular in terms of a bottom-line as expected? A: I am keeping my cautious stance. It is difficult to crystallize the expectations, but considering the results and the price move, I have been maintaining my view that I do not see the stock to move beyond Rs 300. We have been seeing the stock holding at those levels maybe because of some positive numbers or because of the good sales posted by Jaguar Land Rover (JLR) and all sort of things are keeping the stock to hold a level of Rs 300. If you the price behaviour of last one month, you will find that people are trying to exit from the stock and the convenient way of keeping the price stable at about Rs 295-300 is seeing the gradual exit. That will not get reflected into the Futures and Options positions (F&O), open interest positions etc but yes definitely profit booking is happening. So any kind of trigger, which may come in the form of either the poor monthly numbers or maybe in the form of poor quarterly numbers, can make the stock to correct to about Rs 270-275. I will advise to exit on every rise and definitely ahead of the numbers on which I have my apprehensions. I will keep a cautious view and will not keep my long positions open for tomorrow. Q: What about you? Are there any high conviction shorts that you are noticing, because day after day the midcap index seems to be selling off? A: Two stocks come in the mind for shorting and those are Housing Development and Infrastructure (HDIL) and Opto Circuits. Though we have been seeing some upmove but I do not think that that is strength and that maybe largely have to do with the short covering. Considering the negative perception prevailing for the real estate stocks, these seem to be the ideal shorting candidates available in the F&O space. I will recommend these two stocks with conviction to go short. _PAGEBREAK_ Q: Wockhardt comes out with numbers tomorrow, a 300 percent increase in one year in terms of its stock performance. What are your expectations in terms of numbers? How much more upside potential do you see? There are some target prices on the street as much as around Rs 2,300 on the stock. Would you attribute such high levels to Wockhardt? A: Having recommended the stock at Rs 300, obviously you feel that the stock has really run so much. Coming to the results expectation I don’t think that there is any logic of seeing it on a year-on-year (YoY) basis. One has to see it on a quarter-on-quarter (QoQ) basis and you won’t see that kind of increase coming in on that account. But if I need to take a call probably for whole of FY13, I am expecting the earning per share (EPS) to be close to about Rs 155 or so, maybe Rs 2 plus or minus. And if you take in that context share is still ruling at a price-earning (PE) multiple of about 12. Wockhardt is in the top 5 or 6 pharma companies and if you take the call based on the sales-to-market cap or maybe the earning multiple you definitely see it quite undervalued. I don’t think that the PE multiple of 12 on the historic earning because going ahead even for FY14, I don’t expect the EPS to go in double digit.Maybe one can expect an EPS of about Rs 165 or so having said that for FY13 it is estimated to be at Rs 154-155. So even if I expect the PE, I can only attribute the PE expansion as the probability happening, which can make the stock price to move up. I don’t think that much increase in the top-line and the bottom-line can be expected. So in that scenario it would be prudent that you keep a range of about maybe Rs 1,700-Rs 1,900, which earlier used to be between Rs 1,550-Rs 1,750. That is you sell the share if it moves to Rs 1,850, you will definitely be getting an opportunity to buy them back at Rs 100 lower. So that should be kept in mind. But yes, on a fundamental basis and on the results expectation, you cannot take the YoY call on the expected results for Q3. Q: Do you watch Gitanjali Gems closely and any thoughts on the numbers? A: The stock has moved to about Rs 600 maybe a month to 45 days back. If you take the fate of all the jewellery stocks, I think you can compare this also as one of the reliable one. The other players in this space like maybe Tribhovandas Bhimji Zaveri, PC Jewellers and there are so many other players prevailing in this space, you have very least confidence or confidence on the corporate governance etc. I do not think that share can really move beyond Rs 600. You see some kind of informed buying elements happening in this stock also which moves up by 5-7 percent and then quickly gets corrected. I will keep a range of Rs 550-600 for this stock and will not be taking too bullish call looking at these good numbers. Q: What would you do with something like DLF? What is the expectation this time around and after the huge run up that the stock has seen do you expect more on the upside? A: There are two positives which we have been seeing in the stock price to move up. For maybe last one week or so, the company has seen or is showing the reduction in the debt to the extent of Rs 4,000-4,500 crore largely because of the sale of Aman Resorts for Rs 1,700 crore and Mumbai property for Rs 2,700 crore. Second is the launch of new two-three projects and definitely both are seen good. However, I do not think that the effect of that will get to be seen till March quarter, which is for the whole of FY13. Considering the negative perception having built-up on all the real estate stocks and the cautious stance on the results tomorrow, I do not think that market will really be too cheerful and definitely the stock is bound to correct. So I am keeping a cautious stance ahead of the results.