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Last Updated : Sep 27, 2017 11:02 AM IST | Source: CNBC-TV18

Here are fundamental trading ideas from SP Tulsian

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com in which he shared his readings and outlook on market and specific stocks.

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com in which he shared his readings and outlook on market and specific stocks.

Below is the verbatim transcript of the interview.

Surabhi: Just a word on what you have made of the way a lot of the crude related stocks were selling off yesterday, particularly some of the paint companies for instance. What would your view be on the likes of an Asian Paints now?

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A: Maybe the market or the crude related stocks have seen to be the victim of the overbought market as well which I have been maintaining. In fact I have been saying this probably the market is in an overbought position. Once you see the F&O trades getting liquidated off the traders, the collateral which they offer to their brokers in the forms of shares and all that, also gets sold. Probably market whenever you have profits because paint stocks have given huge gains whether you talk of Kansai Nerolac, Berger Paints, or Asian Paints, all of them have given good profit. So, probably maybe to have the profits in your hand, people have also started booking profits in those stocks and coupled with that, the negative effect of the rising crude has played on the stocks.

However, I am keeping extremely positive view on all the paint stocks because we always see the best results ahead of the Diwali season and Q2 is always the best for the paint company and I don’t see that the crude is going to disturb the party on a longer term basis. These are just the near term spikes which we have been seeing in the crude prices and the paint companies have been quite smart because on the listed space if you see, there are only five paint companies available and they have consistently posted for last two decades, probably this is the only sector having posted the consistent kind of growth and profit. So, I don’t have any worry on the paint stocks and keeping the positive bias on them.

Anuj: The stock that is seeing huge rally is Edelweiss. Yesterday also it was up 9 percent and making highs before the market. Your thoughts on what is happening in this space and Edelweiss in particular, and at Rs 280 what would be the call on the stock?

A: If you take a call on all the broking stocks, maybe three or four, Motilal Oswal, IIFL Holdings, Edelweiss Financial, and JM Financial, in fact all of them are seeing to have come on radar; I am not including the NBFCs kind of stocks in this space. They all have a very growing different verticals. However, if you really take a call on all the four stocks, probably one can correlate them with the stock like Avenue Supermart (D-Mart) that yes the valuations are seen either reaching to its full value, if not stretched, and maybe things will be seen taking place in a trading zone, maybe stocks will start showing a correction.

You have seen that happening with IIFL Holdings having corrected from Rs 720 to Rs 620 in this last one week except for Edelweiss Financial which has been on an upward trajectory one way. In fact in this correction also we have not seen any kind of weakness. So, maybe the strong hands are holding it, but on a valuation parameter, probably one has to be a little cautious. Though I have heard many experts expressing concerns more on the NBFCs, but noone has talked on all these four stocks which in fact needs caution as they all seem to have reached its full value.

Anuj: What is your big stock call, Pondy Oxides, what are the triggers?

A: Firstly let me take you to the business model of the company. They are the secondary lead smelter and having two plants, one at Kancheepuram in Tamil Nadu and second one at Renigunta near Tirupati in Andra Pradesh. Both the plants are extremely well or largely having reached to their optimum level and company is contemplating to put the third plant also because of the huge demand or prices of the lead having seen ruling almost at all-time high. If you see on the LME also, and the kind of profitability which we have been seeing in case of Hindustan Zinc, because Hindustan Zinc is the primary producer and there are three secondary lead smelters, Pondy Oxides, Nile, and Gravita which are the three listed stocks.

If I come on the first quarter working of the company, in fact for whole of FY17, we have seen the lead and zinc cycle having revived in the last 12 months with prices having moved up by 40 percent and because of that majority of that rise have seen got added to the bottomline of the company. FY17, company had seen an EPS of Rs 50, but that Rs 50 came with an EPS of maybe sub Rs 10 in the first quarter of FY17 and then started gradually increasing.

However, if I take the Q1 numbers of the company, topline is Rs 240 crore, PAT is Rs 7 crore, with an EPS of Rs 12.60 and looking to the price having risen between Q1 and Q2 by about 16 percent in the lead prices, we are expecting that probably Q2 will see an EPS of maybe about Rs 15-16 and overall one can expect an EPS of closer to about Rs 60 for the company for FY18.

Come on the financials, the equity is very low at Rs 5.6 crore with a face value of Rs 10, promoter stake is 51 percent, and it is a totally debt free company because company always have carried out -- even their working capital have been managed without much of the debt. If you see the share now ruling at a P/E multiple of 7.5 against the peer Gravita which is ruling at a P/E multiple of 13-15 times, while Nile is ruling at a P/E multiple of maybe 9 times.

So taking all this into consideration, share now ruling at Rs 447, we are giving a price target of Rs 535 in next six months or so.

For full interview, watch video...
First Published on Sep 27, 2017 09:25 am
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