In an interview to CNBC-TV18's Surabhi Upadhyay and Latha Venkatesh, SP Tulsian of sptulsian.com shared his readings and outlook on the fundamentals of the market and specific stocks.
Below is the verbatim transcript of the interview.
Surabhi: What do you think of the kind of commentary we have got from a company like Satin Creditcare Network? Does it allay the concerns about the distress these companies might face because states are going ahead with these waivers?
A: Definitely, the commentary has seen to be quite reassuring, but people should not forget that the kind of performance which the company has posted for Q4 was quite disappointing. And you cannot get courage to buy stock when the company has seen the provision having gone 10 times to Rs 40 crore and losses in Q4 alone being shown at Rs 140 crore with a negative earnings per share (EPS) of Rs 12-13.
And for the whole FY17, EPS have fallen to a level of Rs 8-9 because obviously, the commentary if you hear from anyone or in fact that can get extended to all the microfinance companies like Bharat Financial Inclusion, Ujjivan Financial Services where similar nature of loans having been given because if you see the business model or the business presence of Satin Credit, they have a very good presence in or in fact, I would say that very high presence in Uttar Pradesh and Maharashtra, in the rural segments.
So obviously people were largely concerned because of the Q4 numbers having seen. But management commentary, I do not know how far that can be reassuring but unless and until you wait to see the Q1 numbers. But if you are convinced with the management commentary of Satin Credit then probably the similar buying call or positive view can be taken on the stocks like Bharat Financials or may be Ujjivan also.
Latha: At the moment we only have the management commentary to go by and the stock has obviously responded not just to the fact that he did not expect delinquencies, he said the old instalments are also getting returned, the ones that were not paid back during the demonetisation days and then he spoke about a 60 percent growth. Putting all this together, do you personally like the stock?
A: We have been liking this stock, but let me again corroborate this with the commentary of Ujjivan Financials when we have seen the very high provisions in Q3 which has taken away the entire profits and the management commentary with Q3 that all these provisions are just temporary in nature. Majority of that will get recovered in Q4.
That did not happen and we have seen the fate of the stock correcting in case of Ujjivan from level of about Rs 400-450 to as low as Rs 300. In fact we have been giving screaming buy call on these three stocks, Ujjivan, Satin Credit and Bharat Financials for last one year or so. But because of this political development and because of the Q4 numbers having seen for both these companies or maybe all three companies, similar fate we have seen in case of Bharat Financials having all of a sudden, you get to see the losses in the bottom line due to the higher provisioning having made by the company whether it is Satin or it is Bharat Financials.
So there is no question of not liking the stock, but I have my apprehensions on the 60 percent credit growth because even if you take the good monsoon, I do not know whether you can really take that kind of credit growth going in for FY18. Definitely I will be holding my reservations on that.
But yes, the recovery has to be seen getting reflected into the Q1 numbers either by reversal of the provisions or maybe under the management commentary in the form of cash flow because sometimes what happens that you declare your numbers of Q1 that is June ending, maybe by end of July, but management gives a commentary up to July position also of the amount which were provided earlier having recovered. So even if you have that kind of comfort and trend seen getting visible, you can take a call, but I will not be accepting 60 percent growth to be seen for the company in FY18.
Latha: What have you made of Havells India? It has been a much fancied stock.
A: Keeping a positive view because if you see their acquisition of the air condition business of Lloyd, that has happened entirely with their own cash balances. They acquired for about Rs 1,600 crore and they just taken a small line of credit of about Rs 100-150 crore. Even that can get repaid from the current year's cash flow. So I do not think that the balance sheet got stretched and you have acquired a very good business which goes synergistic with your existing product line.
So keeping a positive view but only problem is that stock has always been ruling quite expensive and if you see the Q4 numbers, I was not very happy with the Q4 performance, but still in spite of that, the share corrected by a bit, about 4-5 percent post that. But it has again bounced back. So keeping a positive view post this Lloyd consumer durable business acquisition.
Latha: Would you worry or is synthetic rubber any way now, a very good substitute? This is all we are getting by way of a statement from one of the news wires that a global rubber agency has cut the world's supply estimates to 12.76 million tonnes, we still do not know. The supply deficit is seen at seven lakh tonnes. Your thoughts, if any?
A: Now, the synthetic rubber that is styrene-butadiene rubber (SBR) is definitely seen as a very good substitute and a good amount of blending has already started happening. And even if you see on the domestic turf, I am not taking the global scenario here but even if you take on the domestic turf with Reliance Industries having started their plant for synthetic rubber that is SBR, I do not think that there would be any kind of raw material shortage. But yes, it always because even for the crude derivative, for the synthetic rubber, that goes in line with natural rubber. If the natural rubber prices goes up then obviously the petchem makers or the synthetic rubber makers will also raise the prices.
So overall that will definitely be seen as a cause of concern for tyre makers and that too when all the tyre stocks are seen ruling at the historic high and at a very rich and expensive valuation. So I will definitely be taking a cautious view in view of this release not from raw material shortage point of view, but there will be definitely the expensive raw material available. I do not think there will be shortage of the rubber availability but that will come at a higher price.
Latha: Your view on the metal stocks? You still stay positive on the non-steel stocks? Which ones do you like?
A: Strangely, I am holding positive view on the ferrous metal stocks, but the market has all been giving thumbs up to the non-ferrous metal stocks. And if you take a call on two things, always non-ferrous metal prices are always derived on the import parity prices whether you take copper, you take zinc, you take lead or you take aluminium. And strangely, we have been seeing the prices of Hindalco and Vedanta moving up. Conversely if you see a pure non-ferrous play that is Hindustan Zinc, very strong demand, good production growth that is having in lead and zinc is giving you a price behaviour on the stock exchanges for the last one month, post the declaration of the special dividend and all that.
So yes, the cautious view continues to be of mine because of the weak dollar, strong rupee and obviously you have the lower discovered price on the import parity prices for aluminium, copper and zinc and all sort of things. But I continue to have a positive view on the ferrous metal stocks like JSW Steel or maybe like Bhushan Steel from a resolution point of view, not from a fundamental point of view. So keeping a positive view. There are many other stocks like Sarda Energy and Minerals, Prakash Industries, Electrosteel Steels or maybe the companies like Sunflag Iron and Steel Company. So keeping a positive view on the ferrous one, but a bit cautious on the non-ferrous ones, except Hindustan Zinc where I have a positive view.
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