SP Tulsian in an interview to CNBC-TV18 shares his fundamental outlook on stocks like Eicher Motors, Gillette India, UP Sugar companies and others.
Below is the transcript of SP Tulsian’s interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Anuj: A word on the stock of the week – HDFC and the 8 percent rally that we have seen from this one. Do you think it can gain further from here on?
A: First take a situation which you have just analysed on the index contribution or the index plate which you have shown. If you take the five stocks, HDFC, Larsen and Toubro (L&T), ICICI Bank, Tata Motors and ITC. These five stocks are contributing about 60 points to the Nifty. And the Nifty is now up roughly about 60-65 points.
We have discussed in the past that HDFC now has become a tactical stock where you enter and exit because people, the investors, who are holding the chunk position, they know very well that the stock will move in this range only. It is futile to say that yes, Q4 numbers were definitely good, I do not think that there was any kind of complaint.
So, I will not say that the Q4 numbers were instrumental in making this stock to move. For the simple reason because when the Q4 numbers were announced three days back in the afternoon at two o’clock, we had sufficient time of couple of hours to play long in that stock which did not happen. But immediately from the next day, that is for last three days we have been seeing a rally, today, yesterday and the day before, we have seen the stock move by about 8-9 percent as explained by you. I will not be surprised to see as a part of index management to see again profit booking coming in in HDFC, whether that comes at Rs 1,200 or that comes, that will be difficult for me to give the levels.
So yes, some kind of index management. I have been maintaining my view that May it is going to be weak, so for that, you have to make the days volatile and that is exactly what we have been seeing that you are not able to take a definite call whether the market is bearish or market is bullish. These kind of things which we have been seeing, intraday behaviour, yesterday, the weak market, today again suddenly the stocks moving up largely because of these five stocks would be because of the index management or the technical move in which HDFC and ITC are playing the lead role.
Anuj: What’s your call on Gillette India; it’s one of the big earnings of the day, at least one of the better earnings of the day?
A: I am keeping my positive stance on the Gillette because if you see the earnings per share (EPS) of Rs 25 for the quarter with 9 months EPS of Rs 51, I agree on the valuation parameter, if you really see the stock has already corrected from about 52 week high was Rs 5,600 and now its ruling at around Rs 4,400, so one has to take a call of an entry point and these stocks you cannot buy from a short term point of view. These are truly the portfolio stocks may be in the olden days, when people use to rely too much on the ITC and Hindustan Unilever, we have not seen that kind of things coming in and if you see the entry barrier that is continue to remain quite-quite strong for the Gillette. Because if you really see many people have tried and in fact many of them have left the battle halfway, it is not that people have not really tried. I know that Malhotras those who were pioneer in the field, they miserably failed if you really take a history of last five years. I am not saying that anyone cannot get knocked out of the field or they will continue to enjoy the monopoly, but at least if you really want to have this kind of stocks, I still will give a buy call on Gillette looking to the results.
Sonia: What about Eicher Motors, the Royal Enfield margins are solid, but the street has been left a bit wanting as far as the commercial vehicles margins are concerned at 8 percent. Would you buy it at this price the stock?
A: You can’t meet with all the targets on the commercial vehicle margin, on Enfield margin, on top line because we keep getting the monthly sales number from Eicher and they have all been phenomenal. Again, when you have the Q4 numbers with you probably people will start taking a call on the April sales numbers, then on the May sales numbers.
I will compare Eicher again similar on line with the Gillette. I don’t think that you will really be having a complaint the kind of growth they have been posting, look for a quarterly EPS of Rs 123 and continuously may be see firstly, estimates can always go wrong and they have been going wrong, which we have seen in case of many these things those are just expectations, but if you really take the overall call on the results of the company, I don’t think that there is any kind of complaint on the operating profit margins or even on such a higher base they have been posting as I said, we have been continuously getting the monthly sales numbers of commercial vehicles as well as on Enfield both, so Rs 123 EPS for this quarter. See Rs 471 in 15 months because they just completed their 15 months ending FY16, so I don’t think that one should have any kind of complaint. May be traders will look for a daily view that what are the support and resistance levels, but for an investors this qualifies a good entry point even now at the current level. Okay, one could look for a fall of about Rs 200-400, but nobody can enter at the bottom and nobody can exit at the top, so yes considering the results at least stock qualifies a buy at the current level.
Anuj: You almost dismissed this rally at the start of the show and did not use the term, but almost described it as an index management kind of stock. What do you make of this volatility that is taking place? Again a precursor to your 7,500 kind of levels for the month of May?
A: Yes, I maintain that and in fact, if you see yesterday and day before that unless and until you create the volatility or maybe the extreme on both the sides, which we have seen yesterday as well. I do not think that people can really because you have to make people enter at a higher price to go long in the market and that we have seen happening today because the index management which I valued at about 15 minutes back on five stocks. When the traders, we talk of the smart traders, but I do not agree that the traders are smart and they can make money, I just do not want to reveal the names, those who have lost the seasoned players have lost money in this market in this last three months because when you talk to them, the kind of levels, which were given by them in the month of February and the kind of run up which we have seen, but leave aside those things.
So, this volatility is not healthy for the market either way for the bulls or he bears. So, this confusion cannot give you any direction. You just cannot say that okay, I have bought HDFC at Rs 1,100 let me book profit at Rs 1,170, greed will keep you increasing the levels and at some point you will end neither booking profit of 2 percent or maybe end up losing 2 percent. Take the case of Dewan Housing, take the case of Hexaware which have posted the muted numbers or maybe dull numbers. What was the situation in the morning and what is the situation now.
Take the case of TVS Motors, I have expressed day before also when the results were out that below Rs 285, I do not think that there is any reason for the stock to move down. So my point is that instead of extrapolating the present rate, it is necessary to take a fundamental call. Take the case of Eicher Motors is down by about Rs 200. If you are convinced as an investor, take a position, even as an F&O trader or you leave the market for this May series because you are going to get caught at wrong end on both the sides or the long side as well as on the short side.
Sonia: From the list of midcap earnings that came out today, the likes of V-Guard Industries, Nucleus Software, Gillette India, Castrol India, if you had to pick one stock that you would buy into now, which one would it be?
A: If I need to choose one, then I will go with Gillette, but if you see the Nucleus results, the kind of flat performance the company has shown for first nine months and the kind of spurt we have seen in this March quarter, that gives a good confidence and if that gets extended, then probably my call second preference will be on Nucleus also because V-Guard having risen, I agree that the company has posted a 60 percent growth with earnings per share (EPS) of about Rs 37-38 with Q4 EPS of Rs 13-14, but you have many companies available in this space and even if take a 30 percent growth for the next year and with expected EPS of about 52-53, probably I will not be comfortable buying it at a price-earnings ratio (P/E) multiple of 2, 27 or 28 times.
Anuj: We have sugar rally again today. We discussed this yesterday. It had corrected a bit, but as we head into the earnings season for sugar companies, which are the top three or four names that you will be watching out for that you do not mind investing even at current levels.
A: I have been maintaining my view that I have only been keeping positive stance on UP sugar based mills and if you see the news low which has come in today that Europe has seen the inventory dipping and in fact it is a very cautious level of the sugar inventory level which they are heading on and probably may be in the month of July, they will, the confectionary makers or all will stop getting the sugar, so that is a grim situation, number one.
Number two, if you ask me in view of the results. The first results as I have been focusing my view on the UP based sugar mill, Dhampur results are due on May 10. Upper Ganges and Avadh Sugar are due on May 13 and Balrampur Chini is on May 20. So, it has to be with the theme of the results and two things will be required to be seen. The growth to be seen in operating profit margin on a sequential basis, which I am expecting from 60 percent to 120 percent, I cannot give the general this thing, maybe Dhampur will be able to post a growth of about 90 percent on operating profit, I am referring. I am not referring EBITDA.
And second with their inventory level. Whatever quantity that has been reduced by this UP based sugar mill, I am taking a ball park or thumb rule that about 67-70 percent will be carried as inventory on which they will see a profit of about Rs 5 which will get realised in the next couple of quarters, so maybe with the results theme, I am still comfortable, in fact, I am keeping my positive view for the next two or three quarters, but since you have asked me, only from a narrow result point of view I would say that start with Dhampur, take a call on Avadh sugar, as you head towards the results and only, I think these four companies have declared the results date. So, keep a track on maybe the result date of Dalmia Bharat and maybe one or two other UP based sugar mills as well.