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Last Updated : Aug 02, 2017 05:31 PM IST | Source: CNBC-TV18

Here are some fundamental trading ideas from SP Tulsian

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

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: The first stock that I want to discuss with you is JSW Steel. Do you think if the stock reacts negatively, it would be a buying opportunity?

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A: If you see the Q1 numbers, definitely they are not seen to the mark though the results may have come out on the expected line. However, the kind of commentary which we have seen and the kind of upsurge or the uptick which we have been seeing in the steel prices, coupled with the higher consumption in the Q2 because the problem in Q1 has been more of the coking coal stock which has not been fully absorbed, having purchased at a higher prices that has led to some fall or maybe pressure on the margin.

However, looking to the commentary, the only point which market may not like is the deleveraging. However, I think that has to be read in conjunction with the statement of the management that the expansion and read that inorganic growth because the management has not been categorical in saying that, but I think one has to imply that they are looking aggressively for the inorganic growth also with an eye set on acquisition of Bhushan Steel and Monnet Ispat. In the past management has indicated that they have bid for Monnet Ispat, so, they will have to be bit aggressive.

So, taking all this into consideration, and our view being quite positive on the steel sector going forward, because the situation is looking quite good for FY18 with growth of about 5-6 percent to be seen in consumption in steel consumption, all will start seen trickling from Q2 onwards and I am keeping a positive stance. If the stock corrects by about Rs 4-5 or maybe Rs 6-7, I think that makes a good entry point. In fact keeping that theme in the view, we have been recommending the midcap and smallcap steel stocks having given many ideas in the last one month as well.

Latha: There were plenty of midcap stocks which do not get discussed as much. EIH came with numbers that looked good at least to the eye. Den Networks, GTPL Hathway, TCI Express, anything in the midcap space, mid to smallcap space that you liked?

A: Maybe GTPL Hathway and Den Networks, both I will remain away. I agree that GTPL Hathway has shown good numbers because with earnings per share (EPS) of about Rs 4 having seen for, they have declared for March FY17 numbers. But I do not think that this is a space to be in, because looking to the kind of competition and maybe the kind of competition which we will be seeing going forward from Reliance Jio, and no kind of turnaround seen and with the rich valuations I do not think that this cable stocks will really be having the investment worthiness going forward with a view of about maybe 12-18 months.

But yes, there are many of the ideas which have given good results and that can be looked into. And if I touch upon the results of yesterday which has delivered good numbers, probably DCM Shriram, again a integrated company having presence in sugar, caustic soda and again the agri space, they have posted robust numbers, about Rs 14 plus EPS for Q1 while FY17 was at about Rs 34. So already having 40 percent of FY17 EPS. So yes, you have to take a call based on the numbers having posted, but both these cable duo companies, I will not be taking a call, that is Den and GTPL Hathway.

Anuj: Your stock recommendation for the day?

A: My stock recommendation is Dynemic Products and it is a US Food and Drug Administration (FDA) compliant colour company which they are making food colours and actually if you really see, it is used by many of the industries maybe like cosmetic, personal care, bakery, confectionery, beverages, processed foods, dairy products and pharmaceutical. And they have two plants, both plants are at Ankleshwar with a total covered area of about 2.5 lakh sq ft. And if you really see, the company has posted Q1 numbers. Q1 numbers have been on an expected line with an EPS of about Rs 2.80 while the EPS for whole of FY17 was at about Rs 12.

But because of some disappointment seen in Q1, because in the last one month of June, because of slight increase in the raw material prices and because of the lower offtake of the GST, because of this all FMCG companies which I have said, probably there has been little what you call muted kind of performance and margin which we have seen in case of company for June and that is why we have seen an EPS of closer to about Rs 2.77. But I am not disappointed. I am expecting that probably FY18, company may be showing an EPS of closer to about Rs 13 plus. So that makes a very good entry point.

If you go by the financials, company has an equity of Rs 11.5 crore with face value of Rs 10. Now the market cap of the company is just at Rs 147 crore and with a debt free status, the enterprise value works out at about Rs 150 crore. So if you take a call expected EPS of Rs 13.50-14, the share is ruling at a price-earnings ratio (P/E) multiple of 9.3 and the company has paid a dividend of 15 percent. And now, if I make the comparison, the comparable peer for this company is Vidhi Specialty Food Ingredients and if I take a call on Vidhi Specialty, probably you will find that Vidhi is ruling exactly two times of the valuations of this Dynemic Products.

Just to give you quickly the comparables, the turnover of the company of Dynemic which I am recommending here was at Rs 150 crore for FY17 while Vidhi had an income of closer to Rs 200 crore. While the profit after tax (PAT) of both the companies has been almost same, Dynemic at Rs 13.5 crore, Vidhi at Rs 14.5 crore. Enterprise value of Dynemic is Rs 150 crore, Vidhi is at Rs 330 crore. P/E multiple of Dynemic is at 9.3 while Vidhi is ruling at a P/E multiple of 22.

So what my point is that yes, these are the stocks which have not been noticed by the market and probably looking to the good working which has been seen for FY17 as well as for Q1, I am expecting that if the earning growth may not be there, but there will be huge P/E expansion from 9.3, I will not be surprised to see the P/E expansion happening to a level of 14-15. That will really be a good kicker to see the share moving up and taking that into consideration, we have given a target of Rs 156 on Dynemic Products in the next six months or so.

For full interview, watch accompanying video...

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First Published on Aug 2, 2017 09:45 am
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