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: First up, the hospital stocks, this unexpected buy from a big investor as well Apollo Hospitals has had as we were just discussing, 2-3 years of static EPS, now do you think today and hereafter is going to be the day of the hospital stocks?

A: Two things, first coming on Apollo Hospital, I think there is no point in looking for three or four year’s data or maybe stagnation. In fact the problem for Apollo Hospital started about for the last two or three quarters when the late Chief Minister of Tamil Nadu got admitted and since then they have been seeing their bottomline getting derailed. I don’t think that on the topline there has been any concern.

Two concerns which have risen, one is of the capping of the stents pricing and now of the knee replacement. In fact company has said in their concall that their stent has affected only 4 percent. If you see the main point of disappointment on the financial performance for Q1, has been the addition of new hospitals at Navi Mumbai. If you see, they had about 60-70 beds occupancy in the first quarter which has increased now in fact already to 90 beds and they are expecting the Navi Mumbai hospital to turnaround on the EBITDA level in FY18 i.e. Q4 itself.

So going forward, I think and looking to the corrections in the share price having seen happened in Apollo Hospital, see if you really take a call in healthcare space and if you want to take a call, you don’t have any significant companies available except this Apollo Hospitals and Fortis Healthcare. Maybe I can talk of Malhar Hospitals and there are four or five other smaller hospital companies, but they are not fitting to the buying list of maybe the large investors.

So, focusing on these two, Apollo Hospital we have been consistently keeping, even post numbers we have said that the numbers have been disappointing but now it is looking a good buy. In Fortis Healthcare, again we have been giving a buy call below Rs 150 because the kind of confusion and the kind of uncertainty which has prevailed upon the promoters shares getting pledged because of the Diachi litigations and all that going on with no resolution seen in the near term, probably market has got nervous.

However, I don’t think that that has got to do anything with the valuations of Fortis Healthcare. If it has corrected below Rs 150, it definitely qualifies a buy and now having seen to be moving at around Rs 140 with a large investor having bought stake in the company, all these things goes positive. However, keeping again very positive view on Apollo Hospital from the current level, but won’t be too excited buying Fortis beyond Rs 160. However, below Rs 150 or maybe at the current level of Rs 140-141, it qualifies a buy.

Latha: What is your long term bet for the day?

A: I am recommending Indian Toner for the day. The stock was recommended by me on June 14 at Rs 263 and stock has given a return of about, maybe actually in five weeks only post our recommendation, it gave a gain of about 25 percent. Now having again corrected to the level of about Rs 282, I am giving a buy call for the simple reason that recently in this last maybe couple of weeks, the NCLT has issued an order of the merger of 51 percent subsidiary of the company with itself.

If I go by the product profile, this is India’s largest company making toners and developers for the photocopiers, digital machines, printers, and all that. They are making for the brands such as Hewlett-Packard, Samsung, Konica, Minolta, Toshiba, Xerox, and Brother. As I said, the company is India’s largest and actually recently they have increased, since 51 percent subsidiary of the company is being merged with the company, they will be having a total capacity of 3,600 tonne per annum of this toner making capacity which was at about 2,400 tonne or maybe at about 3,000 tonne.

Having increased the capacity by 600 tonne in the last three months only and if you go by the product profile or maybe the financial performance, after the merger if I take the equity, it will rise to about Rs 13 crore and the market cap will be seen at closer to about maybe Rs 370 crore. Company is having cash and cash equivalent of Rs 70 crore already in the merged entity. So you are getting the company at a market cap of about Rs 300 crore.

Post merger on the enlarged equity I am expecting that EPS is likely to be at Rs 22. So, what you are getting net of cash is at a P/E multiple of 10 or maybe 11. So, I don’t think that if you compare with a – though as I said that there is no comparable peer, but in the similar space if you take Control Print kind of stock, which is commanding a P/E multiple of 17-18, this stock also seems to have a lot of potential because of the product profile and because of the presence in the global market they are exporting to 25 countries, they are catering practically to the whole Indian market.

So taking all this into consideration, I think the stock can move to a level of about Rs 340 in next six months or so.

More to come...