Here are some stock trading ideas by SP Tulsian

Latha: The other one I wanted to ask you, Vinati Organics. Mentally we were prepared for chemical companies largely doing well, Vinati looked a little soft in terms of margins.

A: Again I would call that Vinati has posted flattish kind of numbers. If you really see, you call this company as an API company and the kind of valuations it has been ruling at, probably largely to do more with the momentum, because if you really take a fundamental call also, I don’t think that these kind of valuations really justify. I am not impressed with the numbers having seen because they are again seen to be quite flattish kind of numbers.

Anuj: Two stocks that I want to discuss with you and they have corrected sharply from their recent highs, UPL and Yes Bank, both down 18 percent from their highs. What is your call here?

A: I think both are giving good buying opportunities because if you really take a call, first on UPL, excellent numbers having posted by the company for Q2 and in the Latin American market they have been seen improving their positions because if you really take a call in Q1 numbers, Latin America has given them a hit. However, going forward, things have started improving. If you really take the situation going forward, I think situations are seen to be quite good because of their excellent presence in the agro-chemical, in the seeds business, and all kind of things.

I am quite hopeful that the second half (H2) will be much better. I have seen one typical behaviour with UPL that this is seen as a high volatile stock; it swiftly corrects by Rs 70-75 and swiftly goes up by the same amount. So maybe on expectations of excellent Q2 numbers, which in our opinion are seen to be better if not excellent, the liquidations on the long positions is seen happening and maybe some profit booking also. However, once it starts moving up swiftly, then it can show a rise of about 60-70 points in a very short time. So definitely a buy call on UPL.

Coming specifically on Yes Bank, except for divergence issue, because if you take the core numbers, if you just exclude the asset quality for the time being and even that having got recovered to a great extent, maybe about 75 percent of that in the subsequent quarters, except for their divergence issue because if you really say take the ICICI Bank numbers, they have not diverged or they have not revealed the divergence number of the Reserve Bank of India (RBI) because the RBI audit or the numbers are yet to come. So I don’t think that is something unusual with Yes Bank; that is a usual phenomenon with all banks. We are again keeping a very positive view on Yes Bank and this fall and this correction should be used as a buying opportunity as an investor.

Surabhi: Just coming down to some of the important events and numbers today; on Arvind in particular, the market is awaiting whether there will be that demerger announcement or not, and Life and the brand business, if we do get that demerger, any sense of the kind of value that could be ascribed to it and what happens to Arvind from here on?

A: I think if I first touch on the existing position or maybe the existing valuation, share is ruling at 52 week high. Market cap of the company is now at about maybe Rs 12,000 crore or sub Rs 12,000 crore, and even if I take that 10 percent divestment which has happened in the brand business for about Rs 740 crore, because one can always argue that the brand business will be carrying a substantial valuation, there is no point in giving the sum-of-part valuations and breaking them in two parts to arrive at the full value because you always have a discount element existing.

So even if I take Rs 15,000-17,000 crore as a valuation because Rs 7,000-7,500 crore for the brand which I don’t agree, which I don’t take a call, because brand business has yet to catch on because the company is only making more into the garments and textiles, and the brand has really seen to be catching on from here. Still taking all this into account, I think maybe for a near term or maybe for at least couple of months, even if the demerger announcements happens, I won’t be surprised to see the profit booking coming in because as I said that market cap of closer to Rs 11,000-12,000 crore, Rs 11,800 crore with a share ruling at 52 week high, again typically we have seen with Arvind Limited also, the kind of volatility or maybe the swing which we see into the share price coming in swiftly with range of about 12-15 percent also.

So I won’t be surprised, I am not saying that stock is looking dangerous or it can correct by Rs 40-50, but I won’t be surprised to see the share seeing profit booking of Rs 30-40 also if no announcement comes in or maybe the terms of the announcement or maybe even if the announcement of demerger happens, I won’t be ruling out the profit booking coming in because in the current circumstances, the stock is looking fully priced.

Latha: What is your long-term stock bet for our viewers?

A: I have picked up Arcotech Ltd and this is a very interesting play. In fact you know though we don’t take a call on electric vehicle the prospective companies which can cater to, but looking to the business model of the company because this is India’s only integrated copper-alloy component maker in the India and copper and copper-alloy because purely copper components cannot go into the electrical vehicle should copper alloy components will be playing a very big roll.
Looking to infrastructure of the company they have excellent tool room, excellent research and development (R&D) in house and their plant is located about 60 KM at Bawal in Rajasthan about 60 KM from the Delhi and closer to the Maruti Suzuki and Hero Motocorp.

If you really see the situation company is making strip, sheets, foils, rods and coin blanks and key blanks. Coin blanks means they supply the coins blank to Indian Mint on which the coins are getting embossed and made. Similar is for the key holes. If you really see the financial performance of the company they have been a consistent performer for FY17 with a topline of about Rs 750 crore, with a profit after tax (PAT) of around Rs 26 crore, and a similar kind of performance has been repeated for the first quarter also with an income of Rs 187 crore and PAT of about Rs 6 crore.

But, what has happened is we have seen the stock having corrected in this last may be couple of weeks maybe on the fear that because of the copper prices having increase the company may not be able to pass on because of the medium-term contracts with OEMs and probably the company may post a disappointment in their quarter two numbers. Even if I presume that company posts losses against Rs 6 crore PAT in quarter one even if I think the market seems to have factored in much more on the negative side than what was warranted because if you see the market capital of the company is closer to about Rs 570 crore they don’t have much of the debt.

Whatever working capital finance is avail purely for the working capital except for a debt of about maybe Rs 70-80 crore. So, enterprise value of about Rs 650 crore, promoter’s stake is at Rs 75 crore. So, taking all this into consideration and as I say it is a proxy play to electric vehicles. I think the share is seemed to be having good long-term potential but I am giving a 6 months target of Rs 65 and share is now ruling at closer to 54.

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