In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his readings and outlook on the market and specific stocks and sectors.
Below is the verbatim transcript of the interview.
Anuj: New 52 week high, in fact new nine year high on Reliance Industries. What are your thoughts on what would have transpired today?
A: Difficult to attribute any reason because I can't say that there has been expansion or maybe the value accretion seen in its telecom business. However, one thing which comes to my mind is the expansion in the refining margin because the crude, the kind of corrections which we have seen in crude, one may argue that they will be having the inventory losses, but the kind of end product or maybe the product mix, whether you take gasoline or maybe the middle heavy distillates that is diesel and petrol both, and the kind of procurement which the company is making from the small oil producing countries because the more crude falls, more the bargaining power to the purchaser will come because the countries like maybe Venezuela, Nigeria, those who are really starved of the US dollar will be selling the crude at any price.
So, I am not expecting that to happen for Q1, but Q2 I won't be surprised to see the GRM getting expanded by USD 1-1.5 per barrel and that will be seen quite positive because Q1 numbers probably may not factor in anything from the telecom operations. Either company may not disclose that or even if the company reports that, it will not be seen significant. So, difficult to take a call on that.
Coming on petrochemicals, because prices of petchem have seen to be stable because of the crude derivative or the raw material being the crude derivative seen to have softened. So, even there they have to pass through and I am not taking a very positive call on the gas exploration, on the British Petroleum (BP) press conference. If you just want to attribute some reason, you can always say that BP conference has happened and they are very bullish, Rs 40,000 crore investment, but quite positive, extremely positive on the refining margin and won't be surprised to see it expanding by about at least USD 1.5 per barrel in Q2 while Q2 has just begun.
Anuj: What are your thoughts on CDSL, right now we all know that it is a fact that it was such a sought after issue that is playing out right now, but at Rs 340 what would be the call on CDSL and BSE as well?
A: I won't be taking a positive view on CDSL for the simple reason that if you see the kind of growth which they have achieved of 57 percent in last financial year in terms of their business growth, inspite of that they have a market share of 44 percent. If you see the kind of transaction charges or maybe the charges which they are charging from the company being listed on the CDSL and NSDL, obviously that is seen shrinking. Always if you see, Sebi has always kept a watch on both depositories and kept on directing them to reduce the charges. So, I don’t know how much really one can expect their business to grow.
If I take a call on the expected EPS, I don't think that can be seen above Rs 10 or maybe that will hardly be touching double digit. So, can you give a P/E multiple of 35? I doubt because sometimes what happens that we see these kind of in fact I have said that on the listing day also that probably you may have an upside of Rs 300 but beyond that it will be difficult to take a call and now it is ruling at Rs 350. So, definitely it has gone in a risky zone because even NSDL which is the depository and having a 56 percent market share, will be seen quite aggressive and sooner or later maybe in the next couple of years, even they will go public.
Coming rub off effect on BSE, BSE is holding 24 percent stake in the company and by virtue of that, the share price of BSE is moving up. However, can that argument again remain valid because 24 percent is a minority stake and you can't attribute the valuation criteria merely on that because the divestment or the offer for sale in CDSL has happened at the instance of Sebi or maybe the regulations because BSE had to bring it down, their stake till 24 percent and that is what has happened.
So, I won't be just taking a positive view on BSE also because the kind of cap on the charges and all sort of things and in my view because take the case of MCX where we have been taking a positive view, at least one can argue that the options are getting introduced and if they introduce the options in one commodity because Sebi has allowed only one commodity to be chosen by one commodity exchange, at least you have a very big trigger of new option getting introduced in the commodity market which can see their turnover increasing by 60 percent. So, unless and until you have some incremental income growth to be seen in CDSL, or BSE, I won’t be chasing the momentum at the current level.
Surabhi: Has something changed fundamentally in terms of pricing; you have been telling us about the UP situation, but a lot of diverse sugar stocks are running up today.
A: I have been saying this for last one week and in my recommendations in this last one week or CNBC Awaaz and CNBC-TV18, maybe three or four have been the recommendations of sugar. Now, again, let me reiterate and repeat the things what has happened, in the month of June there was destocking happening at the dealers level, distributor’s level and retailers level and that has seen virtually sugar stocks getting exhausted. Now, if you see the situation, the kind of renewed orders are seeing that has already seen the prices having increased by Rs 0.60 to Rs 0.75 per kilogram in the UP.
In Bihar the prices have moved beyond Rs 37-37.50 per kilogram. That means there the prices have moved up by Rs 1 per kilogram. Now, whatever information which I have, that the cabinet is preparing a note of increasing the import duty from 40 percent to 50 percent, and that note should be out in maybe in the next one week or so, and apart from that, the global white sugar prices which fell to a low of USD 420 per tonne have started improving. So, if you take the situation going forward, the kind of inventory, the situation is very low on the inventory front. Except for UP sugar mills, no other mills are holding any inventory whether in Maharashtra, Karnataka, or Tamil Nadu.
So, even the sugar from UP is coming altogether to the Southern part of India and I won’t be surprised to see the sugar prices further increasing by Rs 1. If you have the huge inventory carried by all these companies, in fact I have estimated and given the inventory gain about Rs 250 crore in Triveni Engineering, about Rs 200 crore in Dalmia Bharat Sugar, Rs 225 crore in Dwarikesh Sugar, I think these inventory gain is going to get hardened and situation going forward again is looking very robust. Maharashtra probably for the next season will record 70 percent production growth in the sugar because last year or in the current season, sugar production was low.
So, you have umpteen number of positive triggers which are in fact I sometimes feel that market was unable to catch any of this positive trigger and I have been repeatedly saying for last one week and I continue to have my positive bias and I won’t be surprised to see the UP based sugar mills, these four or five sugar stocks moving up by about 15 percent in next couple of months from the current levels.
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