In an interview to CNBC-TV18's Latha Venkatesh, Sonia Shenoy and Anuj Singhal, SP Tulsian of sptulsian.com shared his reading and outlook on the market and also gave recommendations on various stocks.
Below is the verbatim transcript of an interview.
Sonia: What one should do with names like Divi's Laboratories now because there is an expectation that brokerages are indicating that there could be a further 500 bps cut in the EBITDA margin because of the issues that they are facing? You see more downside or do you think that it could stabilise somewhere around these levels?
A: There are two points. First is on estimation of EBITDA, probably I may not agree. I see the fall of maybe about 13-15 percent because the geography breakup of the company about 21 percent is sold to US and you have some of the items having excluded by the US-FDA as well.
Now, the situation is that you need to define your time horizon. For instance, if you are an investor with a medium-term time horizon of anywhere between 6-9 months or 6-12 months, because these US-FDA issues are not going to get resolved in the next couple of months or maybe in next two-three months though the management seems to be very serious, it will take time. What is comforting on the other hand also is that the damage in the share price, which we have seen seem to have factored in more than what we are expecting it to happen in the earning prospects. Because if you take a call the share has not corrected by 18 percent yesterday. We have seen the share having corrected in these last three-four months as well.
Now at the current level, I don’t think that much downside is seen but if you are a trader or if you are a near-term investor who keeps checking the price of the stock on a daily basis, I do not think that this would be the right way but yes, the pharma stocks seems to be bottoming out.
Definitely, this US-FDA is seen as a near-term or a medium-term issue but that is seen having largely factored into the price and I am expecting a fall of maybe anywhere between 13 and 15 percent in the EBITDA of the company for FY18.
Anuj: The other stock that I wanted to discuss with you is Hindustan Zinc. The board meeting is today, you told us about the possibility of a large interim dividend before the residual stake sale. Do you think that theme could work out?
A: That theme is very much on the play. If you see now, the company is holding Rs 25,000 crore and government has seriously indicated on many occasions -- if you have heard the statements of Piyush Goyal, he has said that government is very keen on divesting the stake of the company that is 29.5 percent residual stake, if you recall in April 2016 about 11 months back, government impressed upon the company to declare a special dividend of Rs 26.
I will not take this as a second interim dividend, company having declared one interim dividend of Rs 1.90 paise already, I do not think that this is just a simple second interim dividend. This must be at the behest of the government that you clear the cash which are lying with you in the form of the huge cash of more than Rs 25,000 crore and if you see the working going ahead from open cast to underground mining they have gone that is seen improving the prospects of the company, zinc and lead prices are seen ruling higher. We have seen some kind of corrections in non-ferrous metal but if you see Q3 average realisation of the company that is still seen or maybe the current prices are still seen higher than Q3 average realisation.
So I will not be surprised to see company posting an earnings per share (EPS) of closer to Rs 6 with very strong fundamentals and I am expecting -- because if you see the differential between future and spot also, I will not be surprised to see a dividend declaration of anywhere between Rs 14 and Rs 18 per share for which the board meeting has been delayed by two days and consequently the book closure also has been shifted from today to March 28 but the declaration of dividend will get to know but this is just ahead of the residual stake sale which in my view may happen in the next three months which again will be liked by the market.
Sonia: I wanted your view on the home finance and the real estate space because today the Ministry of Housing and Urban Poverty Alleviation is expected to announce guidelines on the interest subvention scheme on home loans and how that whole process will carry forth. From the list of smaller home finance companies or even the real estate companies looking to get into affordable housing, any favourites?
A: Having extremely positive view on home finance company, which I have been reiterating -- if you recall on December 30, when the Prime Minister has announced the interest subvention on Rs 12 lakh loan, since then or maybe prior to that if you have the housing for all by 2022 that is a very positive for all the housing finance companies and maybe in that space in fact you can go across the board maybe at the current valuations few of them may look a little expensive but if you need to pick and choose few of them probably this second run kind of stocks like Repco Home Finance or GIC Housing, Can Fin Home because if you take a call on Dewan Housing or LIC Housing or maybe Indiabulls Housing -- all three seem to be ruling at the upper end. They have already moved quite a lot in this last one month.
So maybe some profit booking can come in but if you take a call in the other stocks like GIC Housing, CanFin Home, Repco Home or maybe even Gruh Finance because Gruh Finance has always been ruling expensive, Repco Home Finance having corrected again is seeing the renewed buying coming back. So these are the few ideas.
Coming specifically on the real estate stocks, you need to focus more on the tier II and tier III cities. I am keeping my neutral stance on the Mumbai based real estate and you do not have the concept of the affordable housing in the Mumbai real estate market maybe the periphery like the eastern suburbs of Dombivli, Kalyan or maybe Vasai-Virar those are the pockets where the affordable housing will come in but I am more positive on the tier II and tier III cities kind of stocks where few of them are available like Ganesh Housing or maybe Prestige Estate or one can look for Puravankara Projects also so these are the few ideas where one can keep an eye from the real estate point of view on the housing theme concept.
Latha: On Dr Reddy's Laboratories and now which is the safe harbour in the drugs space?
A: Data integrity has never been accepted in any field whether you talk of accounts or you talk of pharma. So that is a known fact.
Probably I am more worried on Dr Reddy’s than Divi's Labs because if you see the issues prevailing on DRL seems to be more of a serious nature but it is difficult to take a call because if you have to remain cautious then select the least affected company and in that space -- there can be amongst the larger ones those who are catering to the US market -- I see honestly only two stocks in the pharma space that is Aurobindo Pharma and Glenmark Pharma which can be picked up. One does not know that again certainly you see some kind of issues getting rising on both these companies also but as of now these stocks are looking good for investments from US-FDA point of view.
Anuj: You used to track it off late of course it has been off your radar, Wockhardt at Rs 740?
A: I have said that in the past about a week back or maybe couple of weeks back when there was some minor negative news that I do not see much weakness coming in in to the stock now from hereon and Divi’s Labs and Wockhardt both seems to have bottomed out, it is difficult to take a call of couple of percentage up and down behaviour but I do not think that things are looking negative for Wockhardt but yes, even in case of Wockhardt there is still no clarity on the US-FDA front though yesterday we have seen a small minor positive news coming in from US-FDA. So with one of their global partner but I do not think that that can be taken as a big positive news. So no negative is seen on Wockhardt from hereon but long-term positive view seems intact on the stock.
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