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Last Updated : Jun 14, 2017 04:49 PM IST | Source: CNBC-TV18

Here are SP Tulsian's top trading ideas

In an interview to CNBC-TV18's Anuj Singhal and Surabhi Upadhyay, SP Tulsian spoke about his readings and outlook on the fundamentals of the market and specific stocks.

In an interview to CNBC-TV18's Anuj Singhal and Surabhi Upadhyay, SP Tulsian spoke about his readings and outlook on the fundamentals of the market and specific stocks.

Below is the verbatim transcript of the interview.

Anuj: You were saying in the morning that you would look at the developments as positive, but specifically on names like Allahabad Bank, IDBI Bank and a couple of others like Syndicate Bank, do you think this rally could continue?

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A: In the morning I have said that I am taking a positive view on all PSU banks and in the morning I have said that rather I will be taking more on the larger banks like Punjab National Bank (PNB), Bank of Baroda or maybe State Bank of India (SBI) kind of stocks. But now, we are seeing the smallcap or maybe midcap PSU banks are seen moving up like Indian Overseas Bank (IOB), Dena Bank, Syndicate Bank. Actually, if you take this non-performing asset (NPA) resolution probably, I have been hearing all the experts and some of the banks managers, but these bank officials, I have always found them either to be very 'thanda' or with no motivation seen on the NPA recovery.

In fact sometimes, I feel that if they would have been prompt and active, probably the things would not have gone such a messy for all these things. But anyway coming on all this NPA resolution move which I strongly expressed in the morning also that I am seeing extremely positive outcome to come on. If you have heard Sajeev Sanyal, the way he has narrated the things, that they are looking for resolution and not for winding up or maybe insolvency or maybe liquidation of the companies and that is if it fructifies.

I have given the example of five steel accounts also amongst the 12 having identified by the ministry or maybe by the banks for tackling that resolution part. That will ultimately be seen quite beneficial because if you see, in all these 2 accounts, or for that matter any of the exposure having more than Rs 5,000 crore to any company, all these 15-18 PSU banks are all involved and everyone will be having the pie of shares of the recovery of this amount which will be seen extremely positive.

So I am keeping positive view on all this PSU Banks as well as a positive view on the five steel sector stocks because if you have the potential acquirer for any sector which is seen quite hot and which is seen quite acceptable, I do not think that you need to worry for recovery.

In fact this is the intention of the promoters of those five companies which are in fact not allowing these things to happen. But now since having taken up by the ministry, by RBI so seriously, I am very positive on the outcome and hence, have the positive view on the PSU banking stocks going forward.

Anuj: What explains this counter-trend move that we are seeing in Yes Bank, because of course, there was a brokerage note as well? But as we see the Bank Nifty moving to the high point, the Yes Bank stock has moved to the low point of trade. Is this is a comfortable level for you to start accumulating?

A: I have been keeping a positive view on the Yes Bank and when you have seen this divergence in the NPA, at that time what is happening now, I am not saying that everyone should take a positive call or everyone should take a negative call, but I do not think that things have all understood in a correct manner and if you correlate that with the meeting of Chanda Kochhar had with Finance Minister, where the presentation was made by her as gathered by the media report or maybe from your channel where it has been explained that why this divergence in NPA should not get reported, at that time also we have seen the things negative happening on Yes Bank.

And again, now with some kind of report which I have not gone through or which I am not aware of, again we are seeing this kind of profit booking corrections happening, largely because of the trading or maybe the weak traders because they create long positions when the stock starts moving up and when you see these kind of reports coming in, they quickly get out or either the stop loss they are forced to get out with the stop loss getting triggered and all that. But on a fundamental basis I am very much comfortable with Yes Bank, the kind of growth, the kind of asset quality, the kind of management commentary which we have been hearing. So I have no worry as an investor on the stock.

Surabhi: Some of these heavily indebted companies, these stocks have been down and out right from the morning and that trend still continues, Bhushan Steel, Lanco Infratech, Electrosteel Steels, etc. Is there any advice you have for shareholders at present because there is a lot up in the air and I guess the rights of equity holders anyway will come after the rights of the creditors, even if these companies were to go through the Insolvency and Bankruptcy Code (IBC) route, even if they were to find new buyers?

A: If we take the text book view which you have said that the equity comes at the end then probably you will be taking the most pessimistic view. But I have said in the morning also that I see huge value in the steel stocks. Just to give you an example, take the case of the most worried company that is Bhushan Steel. The company has capacity of six million tonne of steel plant. JSW Steel, which is the best company having enterprise value of Rs 90,000 crore having three times the capacity of what Bhushan steel has that is 18 million tonne.

Now Bhushan Steel is an operating company having annual turnover of Rs 15,000 crore against JSW Steel having turnover of Rs 57,000 crore. Now, Bhushan Steel has an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 21 percent, but JSW Steel has an EBITDA margin of 20.7 percent.

Now where the problem lies is the lower operating capacity because obviously, if the company is into stress, if they have not been making payment, obviously, they will not be getting the working capital finance, they will not be able to service the long-term debts which they have availed from the bank. If you take even the situation on the net position, Rs 48,000 crore of the total debt including working capital finance to Bhushan Steel, Rs 10,000 is very well supported by the current assets because as I said, Rs 15,000 crore is the annual turnover of the company, the largest auto grade steel maker. That means, you are left with Rs 38,000 crore debt with Bhushan Steel.

Now, I see the value of this six million tonne. If you take a ballpark that it costs you about one billion per dollar for creation of this kind of one billion capacity. That means that is the net present value is closer to about Rs 42,000-43,000 crore and if you are expecting a haircut of even 40 percent, that means the value of the banks or the exposure of the banks can get settled for Rs 25,000 crore. Your market cap is less than Rs 2,000 crore.

So whatever accretion which will happen in the value of the shares or with the value of the company will get reflected into the share price. I will not be surprised. In fact I have been giving a buy call on Bhushan Steel for the last 3-4 months on your channel from the levels of Rs 50-55. And I am expecting that because of the many suitors there for acquiring this company, the fortunes of the company will get changed and I will not be surprised to see the share appreciating by 100 percent in the next 12 months.

But if you take a daily call and if you take a textbook view that equity comes at the last and nothing will remain and you expect that company will go into liquidation, all the assets will get thrashed out and will put on the disposer, I do not buy that theory that why that will happen when there are potential acquirers for the company and that is why I have said, I see huge value. Just paid up equity of Rs 45 crore for Bhushan Steel. So let us not take a fundamental call.

If you are taking a garbage call or dirty dozen call, then analyse the company accordingly and take  the valuation call accordingly whether a new acquirer can come into the company or not. So similar stand is being taken by me on the companies like Monnet Ispat, companies like Bhushan Steel. Bhushan Power and Essar Steel, both are not listed, so I will not be able to give you any comment on those stocks.

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First Published on Jun 14, 2017 03:57 pm
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