Aluminium disappoints; bet on Cipla, Motherson: Tulsian

SP Tulsian of sptulsian.com is not very satisfied with the performance of the aluminium segment of Hindalco. According to him, its copper division has done better and the overall performance of NALCO, Sterlite and the consolidated operations of BALCO has been poor, resulting in a poor aluminium segment performance.

Tulsian is upbeat on the pharma sector and picks Cipla as a favourite. He is also positive about Wockhardt and Glenmark Pharma along with Motherson Sumi. Here is the edited transcript of the interview on CNBC-TV18. Q: What have you made of Hindalco's numbers? Operationally, the numbers look a little bit disappointing, but that stock has actually reacted positively ever since the numbers came out and recovered quite a bit from the low point of the day?
A: I think they have better performance from copper division, but there was disappointment from aluminium because the performance posted by NALCO, Sterlite and the consolidated operations from BALCO was giving indications that operation from the aluminium sector has been very poor. If you really take a call on aluminium, I think things have been really very bad.
But, looking at the disappointment or profits posted, especially on the EBITDA front, I will go by a sequential call if you take EBITDA on a sequential-basis. In fact there has not been much dip. But on the PAT level there has been slight disappointment and if you see the performance, there are some companies like Crompton Greaves which you can include. Similar is a case with Hindalco and Tata Steel. Their standalone performance have always been holding good.
I don’t think that there is any complaint on the standalone performance of these companies. It is only the consolidated operations which have been making it look very bad. Since Hindalco has posted this standalone, I don’t think that on the operations you have much of a disappointment because a larger part of the dip in aluminium business has been made good by copper. Q: On Cipla what more would you give it on the upside? We have seen a slew of brokerages. There are very bullish guys like Jefferies who have placed a target price of about Rs 440 or so on the stock and trading at close to Rs 400 right now, where do you see the stock head?
A: These are excellent numbers when you see it posting this kind of performance in  consecutive quarters. When we saw their Q1 numbers, we all were very impressed. But looking at Q2 it looks like back to back centuries being slapped by a batsman. Obviously, you are going to revise the target upwards and I will not be surprised to see a price target of Rs 440. The management has cautioned that these kinds of improvements or ramp-ups cannot be expected on a sustainable basis.
But, if you go by the body language or the kind of indications which have been coming in, apart from the positive bias of the market on the pharma sector, we have seen better performance coming in from stocks like Shasun Pharma, Wockhardt and Glenmark Pharma.
If you see better performance coming in, markets are really rewarding quite well. I will not be surprised to see a price of Rs 440 for Cipla by the time they come out with their Q3 number. I will not be keeping that target to be achieved in a month or so, but maybe in 2-3 months we may see that target.
_PAGEBREAK_ Q: What have you made of Motherson Sumi's numbers and whether you would recommend the stock at these levels?
A: The stock definitely looks good because after hearing Vivek Sehgal and Peguform, it is likely to contribute better in Q3. And if you go by their present Q2 numbers also, I think the global operations have contributed significantly to the bottom-line. Even if you exclude that exchange gain of about Rs 85 crore, the results are still quite good.
I am not very happy with the domestic performance. One can say that they have been more or less on the expected line, but very impressed with the contributions made by the global operations. If Peguform, which has been a painful acquisition for them starts contributing to Q3 and Q4 also, it would be very good.
Overall, I am keeping a positive view. The share is now ruling virtually at a lower end. Maybe a month back we have seen huge volume growth happening in the stocks in the form of block deals also. The share is moving to Rs 180-185. I am expecting the share to move back to about Rs 180-185 in the next one month or so. Q: If there is this bullish sentiment that will continue in the market are there any stocks that you would advise for trade for the immediate term and post that I want you to talk about Amara Raja as well. It surged some 19 percent post its numbers. How much more would you give it now?
A: Q1 numbers were very good and since then the stock has been moving up. If you see the recent split of the stock from a face value of Rs 2-1, even if I take an EPS of close to Rs 20 on a reduced face value of Rs 1, till now the company has posted an EPS of close to about Rs 9 for H1 and even if I take an EPS of Rs 20 the share is ruling close to about 13-13.5 PE multiple. Honestly, I will be a little cautious.
If you recall the Q1 numbers, we saw the same kind of frenzy in the stock. Thereafter, the stock saw a correction of about 8-10 percent. Maybe things can make the stock move to about Rs 275-276, thereafter it can slip back to about Rs 245-250 which can make a good entry point. That will be the strategy on the Amara Raja Batteries.
Coming specifically on the results, tomorrow we will be having the results of Balrampur Chini. Although, I am not saying that sugar stocks have a huge presence in the market, I am expecting the positive surprises to come in. Yesterday we have seen the results of Rajshree Sugar which has posted very good numbers.
I am keeping my positive stance on the sugar stocks and that can be a good idea. But again a cautious stance on the bank stocks. The worst result post today was that of Canara Bank. But, look at the market behaviour. That shows the trading grip on the stock in spite of the poor numbers. I recall stock moved up as soon as the results were announced. It has corrected by 2 percent and then it has straightaway turned into 3-3.5 percent positive.
The technical rather than fundamental strength is seen more in banking stocks. I will keep my cautious stance on the banking stocks. This is my overall strategy on the market. Q: A word on Jindal Steel and Power and how important is it getting the final clearance for this Utkal B-1 block?
A: Definitely that is positive. But, I think ultimately the view on the metal stocks continues to remain weak and when we see the numbers of all the companies, probably that will again see the share correcting back. I am expecting the share to move to about Rs 390-395 today.
But, it is not able to sustain the higher level. I am not very positive with that. We are seeing the move which we have seen in case of Hindalco. Again the Mahan coal block got clearances and the same thing has happened here. Maybe a temporary upmove is seen in the stock. Q: What is the call on telecom now? We have seen both Videocon as well asTata Tele opt out of the CDMA auction. In general what bearing will this have on the telecom industry? How would you read this? What impact will it have on the upcoming GSM election?
A: I do not know whether that can really compel the government to rethink on the reserve price set for the GSMA auction. Now the auction is due on November 12. That shows the lukewarm response from all of them. But, in GSM you still have five serious players in the fray and they will be keen to go for the bidding.
I am not keeping a positive stance for the overall telecom sector because come what may, I do not think that the stance will get diluted. The government may wait for the auctions to happen. We will see the outcome, but overall the performance and the capex burden on the companies are likely to be quite stiff. Tomorrow the Bharti Airtel numbers can also be a disappointment and it can make the stocks go down. Overall, it is a cautious to negative stance on Idea as well as Bharti Airtel.