Checkout: Tulsian's views on Ujjivan, ONGC, SBI

SP Tulsian of sptulsian.com in an interview to CNBC-TV18 shared his views on quarterly earnings of Transformers and Rectifiers and ONGC. He also spoke about his expectations from SBI and way forward for PSU banks.Below is the verbatim transcript of SP Tulsian interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.Sonia: I wanted to ask you about Transformers and Rectifiers, very good numbers coming in and this was one of the stocks that you had recommended a couple of months ago. If someone has missed the bus, do you see more traction here?A: I mentioned that when I recommended the Transformers and Rectifiers at that time, I said that in fact, if you see the focus of the government and of the power generation company on T&D all the transformer makers are going to perform very well and in fact, I would say that 3 results one Bharat Bijlee, second Transformers and Rectifiers and yesterday Indotech Transformer, which is again a GE group company having 75 percent stake, all three have posted robust numbers. In fact, keep this positive bias continuing on all the transformer makers for may be next 4 quarters, because the kind of margin expansions which we have been seeing in these companies and the continuous order flow, because you just cannot expect this transformer companies to have a very long pipeline of orders, because the orders needs to get executed at a cycle of 3-6 months. So even if you have the order pipeline of say about 6-9 months that is seen quite robust and as I said that Indotech Transformer having acquired in 2008 by GE Group and after 6 years or may be after 7 years this company has turned around.Now coming on Transformers and Rectifiers, if you see the operating profit has risen by 300 percent from Rs 6 crore to Rs 24 crore plus, I am comparing YoY with top line increasing by 50 percent, so moot point is that there is going to be seen increase in the top line, but the margin expansion is going to play a key role and mind it this Transformers and Rectifiers on a yearly basis still their bottom line is in negative, but if you see their Q4 EPS it is at Rs 8 plus while the whole of FY16 EPS is minus Rs 6, so see the kind of valuations which are given by the market to all these transformer makers based on the working which we will be seeing from these companies in FY17.Anuj: A word on the stock of the moment right now, Cummins and how would you approach it after the concall details?A: Definitely this is seen negative because sometime I don’t think that you can really pardon the promoters by doing these kind of things, because when you nurture a company promoters are having 51 percent, you can argue both the sides that okay company continues to get the marketing margin or distribution margin, but a company having created or built up, Cummins India is a Rs 5,000 crore top line company, 51 percent is held by the MNC promoter.Either they should raise their promoter stake to 75 percent and be fair of launching if this is their launch pad for India, then I don’t think because when they are using the infrastructure, marketing network, the technical expertise of the people you just can’t compensate them by paying some kind of marketing margin, so definitely this is not seen a good corporate governance move and rightly the market has penalised the stock price.Anuj: We discussed this yesterday, but since the stock has had another follow on rally, what’s the fair value for Ujjivan Financial because of course it’s relatively has lukewarm listing compared to some of its peers, but at current level after the kind of rally that we are now seeing from the issue price, how much higher for the stock?A: First if you take a call on the book value, it is likely to be Rs 150 on March 31, 2017.I am not saying that I am not positive on the stock because if you recall when the stock was listed I preferred investment in Ujjivan over Equitas and if you see relative performance of Ujjivan post its listing over Equitas, this stock has performed really very well.Now if I just go by the profit after tax (PAT), Q3 PAT of Ujjivan was Rs 49 crore and for Q4 the PAT is Rs 55 crore, in fact company has not given the breakup of the performance, but if you subtract the 9 months performance, which has been given in the RHP with the 12 months results which has been given by the company. The company has been posting a secular growth may be QoQ growth which is seen quite high, but on a price to book on the current year’s earnings as I said Rs 150 is the book value which will be seen on March 31 2017, the share is now ruling at a price to book of 2, so may be in the near term, I don’t think that the stock has much upside because if you are seeing a company getting converted into or migrating to small bank also, that will be seen negative by the market. May be in my view the stock should take a cause. This rural or may be the good monsoon theme is all seen in this all stocks to really move up Ujjivan and other Non-bank financial companies (NBFCs), but for the time being I think that Rs 300 look fair price for the stock in the next may be couple of months or so. One has to wait for the first quarter numbers to come in and at that time one can really take a call again on the stock.Anuj: 5 percent higher on ONGC this other income component could it be inventory gain, could it be something else, how would you look at stock like ONGC now?A: No, it is not looking like inventory gain because if you see the operating profit has fell from Rs 4,800 crore to Rs 2,110 crore, that’s the right way of analysing these things not the earnings before interest, taxes, depreciation and amortization (EBITDA) because depreciation being the constant factor so this is a fall of more than 60 percent on the operating profit front on a sequential basis and definitely the other income of Rs 3,400 crore has aided the this one, so I won’t be calling this numbers as too great, because if you see there has been tax credit also of about Rs 300 crore and in fact liability of deferred tax Rs 2,200 crore has seen the net tax liability of Rs 1,930 crore, so may be because deferred tax liability has come that is not seen such a negative, this being a non cash item and there is no cash outgo, but on the operating front there is a big disappointment, but on the bottom because of the other income it has been held on to the level of about Rs 4,400 crore. I will call this numbers as average I won’t be too excited looking to this.Anuj: Has time come to relook the way some of these F&O dynamics are treated in India, we have seen for example a lot of call premium surging 1,500 percent, today we have seen a surge of 800-900 percent in certain call strikes.A: I don’t think that you can do anything with the indices like Bank Nifty or may be the Nifty, but yes that is required to be done in case of this stocks because which I have been saying repeatedly that unless until you settled the F&O position, with the security settled in future you can just see this kind of volatility, because if you take for instance if any stock is ruling at Rs 400 and it is very easy to pull that stock to Rs 440 or Rs 450 may be in next 2 or 3 days ahead of expiry and if at the point of Rs 400, probably the Rs 420-430 call would have ruled at Rs 2 or Rs 3 or may be Rs 1 so there you can make a killing, so this kind of cash settled F&O situation in individual stock is seen very dangerous and probably that is in fact causing lot of losses. If you recall may be 3 days back we have discussed, the kind of pessimism it was prevailing in the market with all sell call given, when you talk to the brokers and all that they were selling left, right and centre the cash holdings of their clients to finance the losses, so yes this kind of volatility you can’t control in the indices, may be in the sectoral indices or may be in the benchmark, that can definitely controlled in case of stock if you make it as a security settled instead of cash sector.Sonia: We have SBI’s numbers tomorrow and because of the market momentum today the stock went up 5 percent, but what are you expecting this time do you think we have to prepare ourselves for a big shock considering what the other banks have done?A: I don’t think that if you really take a call or try to compare it, I don’t think the kind of shock which we have seen in case of 3 banks largely PNB, Bank of Baroda and Bank of India, I don’t think that kind of shock is going to be seen.On SBI, post the numbers also, I am keeping a positive stance and in fact, if you want to take a call probably in the June series all the PSU banks should perform well because whatever the kind of shocks which we have seen in the system for May series got squeezed out and people have gone long and in fact if you take a valuation call again mind it that this is not a fundamental view, this is just a technical call for June series that I am keeping my positive stance on all PSU banks. One has to wait for the results of Canara Bank, but one can take a position in Bank of India, PNB, Bank of Baroda, SBI and may be the other smaller PSU banks as well. So keeping a positive stance on PSU banks for June series and I don’t expect the shocker to be seen in case of SBI, the way we have seen in case of three others.