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.

Below is the verbatim transcript of the interview.

Latha: What is your take on Bharti Airtel, do you think the market will give it a thumbs up?

A: I don’t think that thumbs up will be given because if you see the Q1 numbers, they are exactly on the lines of Q4. Numbers were not expected to be bad. In fact I have said yesterday also that I am not expecting any kind of disappointment. However, the fresh move by Jio on this free handset kind of things, is seen quite bad for the telecom stocks going forward.

You have the relief coming in from the government in terms of the payment and all sort of things, but inspite of having no disappointment having seen from Q1 because Q1 expectations have already factored in that these kind of numbers were expected which are exactly on line of Q4 and Q4 were seen as big disappointment. So, I won’t be taking a fresh buy call, but I am not disappointed with the numbers.

Anuj: In Closing Bell yesterday you talked about GE T&D as a stock to watch, in fact you have been bullish on this stock. Phenomenal numbers, what next for this stock?

A: We have been very positive and I tell you that these are extremely good numbers. I don’t think that one should see the standalone Rs 61 crore kind of profits which the company has shown. Firstly, you see in the background, because Q4 is always the best for T&D companies and even in Q4 the company had a PAT of Rs 41 while in Q1 which is always a lean quarter has posted a PAT of about Rs 61 crore translating into an EPS of Rs 2.5 per share .

If you see the situation on a comparable basis on a year-on-year (YoY) basis, YoY had a – I am excluding the exceptional of Rs 253 crore which the company has provided in the previous year of Q1, and even if I knock that off, the PBT was at about Rs 10 crore against which the company has posted PAT of Rs 61 crore because it is difficult to ascertain the PAT for comparable period of previous year.

If you see the order inflow, 99 percent increase in the order inflow on YoY basis with order inflow of about Rs 1,900 crore but now with company having order in-hand of about Rs 8,500 crore which is giving visibility for next two years. As we have been very positive on T&D space, the kind of orders which we are seeing coming in to the company from Power Grid or maybe companies like India Grid, Sterlite Group and all that.

So, taking all this into consideration, I think this is an extremely good numbers and GE T&D gets placed in the category of ABB and Siemens where they enjoy P/E multiple as high as 55-60 times because GE is the promoter holding 75 percent stake. So, excellent numbers and positive outlook on the stock going forward.

Reema: Let us come to your long term stock bet and that is Rico Auto, why is that?

A: This is an auto ancillary company making aluminimum and ferrous, high precision and fully mechanised products. If you see, they are catering practically to every auto maker, there is no point in repeating the names and their presence has been more into the two wheeler space. If you see the numbers, for FY17 if I quickly come on the FY17 numbers, topline was at Rs 1,100 crore against Rs 1,020 crore in the previous year i.e. FY16. However, inspite of the practically stagnant topline, the company posted a PAT of about Rs 48 crore against Rs 26 crore of FY16. This kind of increase in the margin and profitability have started seen reflecting from the second half of FY17 and that has given an EPS of closer to about Rs 3.60 against Rs 2.20 of FY16.

As I said that they are practically catering to all the auto makers whether you call of passenger vehicle, tractor, two wheeler, three wheeler, but their focus has been more on two wheeler. They have 14 plants in India, 5 joint ventures (JVs) globally, and one standalone plant abroad. So total about 18-19 plants. If you see the financials of the company, about Rs 60 crore debt is there in the books of the company. I am only referring the long term debt, I am excluding the working capital. Market capitalisation is closer to about Rs 1,000 crore. So, you get an EV of about Rs 1,060. That means EV to sales it is one time.

I am expecting because the company has about as I said that, they have recently started a new plant on Bhiwadi with a capacity of 18,000 tonne per annum which constitutes about 12-13 percent increase in capacity. So I am expecting that FY18 should be able to post an EPS of Rs 5 plus. The presentation which the company has made, that presentation is available on the stock exchanges site, is giving a very rosy picture and I don’t see any reason why EPS of Rs 5 will not be seen for FY18. Maybe it can be Rs 550 or 556.

So, if you take that into consideration, share is available at a P/E multiple of 15 times. An auto ancillary with such a geographical presence and across the board 14 plant in the country, in every corner whether you talk of the south Chennai, Maharashtra, Uttarakhand, Haridwar, at all these places they have their plant. So, taking these into consideration, and 50 percent promoter stake, very low debt of about Rs 60 crore, the share now ruling at Rs 74 can move to a level of about Rs 93 in next six months and we are keeping extremely positive view even from maybe next couple of years point of view and not just from six months point of view.

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