In an interview to CNBC-TV18's Sonia Shenoy, Surabhi Upadhyay and Reema Tendulkar, 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 the interview.
Sonia: Wanted to talk about some result reaction because I remember you telling us that you are quite bullish on Voltas for a long time now. That stock has not only rallied but the numbers are also good this quarter, you see more upsides there?
A: Let me put the things in perspective for sugar. Uttar Pradesh (UP) this year’s state advised price (SAP) is Rs 305 per quintal and in spite of that you will see the record performance getting posted by all the sugar mills. There will be practically 400 percent increase in the profit after tax (PAT) over FY16 for FY17. For example, Balrampur Chini had a PAT of Rs 100 crore in FY16, they will probably be posting PAT of Rs 500 crore and this has been the case with all the companies, whether you take Triveni, DCM Shriram Industries. So this is a misnomer to say that fair and remunerative price (FRP) if gets increased from 230 to 255, it will be negative for the sugar stock because this is just a book figure.
Coming on Maharashtra, Maharashtra sugar is in the cooperative sector. If you are a cooperative, that means you are also the owner. You just pay the lump sum price to the sugar farmers and after the year-end you work out the profitability and that gets distributed into the farmers again. That is a cooperative principle.
Now UP and Maharashtra both are producing 8 million tonne of sugar every year which are about almost one-third.
Speaking about Karnataka, no one is paying less than Rs 260-280 per quintal, so they are way above FRP, so I do not think that this just increasing the FRP, FRP is just a book entry or it is just a book figure.
Supreme Court (SC) has upheld that SAP can be exercised by all the states and that is the reason, unless until we go with the C Rangarajan formula with the sugar prices then only these all problems can get resolved otherwise even if the sugarcane prices remains at Rs 305 per kilogram, all the mills will be seen quite beneficial -- forget Rs 255, even at Rs 305 they are making excellent profits which is all evident for these financial results. This is on sugar.
Coming on Voltas, things are looking quite positive and we have been maintaining positive view and if you see the number, which they have posted – both the segments, unitary cooling division and apart from that their engineering project division, which has been a dampener, in fact that segment has shown an EBIT of about Rs 45 crore on a year-on-year (YoY) basis, a growth of more than 80 percent.
Apart from that, I think that because being a cash surplus balance sheet of close to about Rs 600 crore, the company is now entering into the consumer durable space also. That is an additional sweetener because if you take the call, all the consumer durables, Voltas has just one consumer durable element that is air-conditioners, they are more into the engineering projects and all that but now once they plunge into the consumer durables also, the P/E expansion will happen which we have seen in case of Crompton Greaves or so many other consumer durable companies, which are generally seen ruling at a P/E multiple of anywhere between Rs 30 and Rs 35 while Voltas is still ruling at a historic P/E of Rs 26 and maybe on a forward earning, it is ruling at Rs 20-21. So excellent numbers, and going forward, because of this consumer durable, 50:50 joint venture with a Swedish or maybe Israeli companies, the outlook on the stock will continue to remain positive.
Reema: We have got price targets ranging anywhere from Rs 550 to about Rs 600 on Tata Motors. What would you say looking at the performance?
A: If you see the numbers, you need to accept that Q3 was one off and if you take the call on the numbers which have been posted natural, that has come entirely from Jaguar Land Rover (JLR) because you don’t expect anything to getting contributed from the standalone business, that is Indian operation that will continue to remain a drag, I am keeping extremely positive view and if you see, maybe just to give a different perspective, first on the profitability, excellent topline has only been showing lower because of the exchange or maybe because of weakening Sterling pound but margins are seen intact.
If you take a call, we are expecting that probably for FY18, company should be able to post an EPS of closer to about more than Rs 40 and if you have that kind of calculation, in fact ambitious targets are given at Rs 48-49 as well but on a conservative basis, I do not see any reason for the company to post Rs 40 EPS. Things are looking quite positive and maybe about six months back, at one time the differential between marketcap of Tata Motors and Maruti used to be Rs 10,000 crore. Now that gap has widened to Rs 75,000 crore.
So what has happened in this last three-four months that the institutional investors have found just one stock in Maruti and they have all been lapping up this stock because there was no alternative available. But I think now with this kind of excellent numbers, which we have seen from Q4 and I am hopeful that it is likely to get extrapolated for FY18 also, funds and high networth individuals (HNIs) are bound to take a shift from Maruti too.
I am not saying I am keeping a negative outlook on Maruti -- when majority of the markets were negative on Maruti couple of years back at Rs 3,000, we have been holding quite bullish but the way it is looking to the Q4 numbers, I think I will not be surprised to take a price of Rs 600 in Tata Motors in next six months because the swiftness with which the prices move, which we have seen in case of Maruti, almost given a return of maybe 60-70 percent in this last six-eight months can be seen happening with Tata Motors also. That is why I have said that I will not be hesitate in taking a price call of Rs 600 also in next four-six months, an extremely positive number seeing from the company.
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