In an interview to CNBC-TV18's Reema Tendulkar and Surabhi Upadhyay, SP Tulsian of sptulsian.com shared his views and outlook on the fundamentals of the market and specific stocks.
Below is the verbatim transcript of the interview.
Surabhi: You have been making this point earlier that we do not need to go by text book definitions and just think that bankruptcy is equal to complete asset stripping. What about Amtek Auto as a company and the kind of assets that it has? Do you think there is any merit left in the business? What is your advice to current shareholders?
A: Again, at the cost of repetition and having heard so much of dirty dozen and the loose analysis having made by the media and the experts, I had say that with a deep heart. In fact, four days back I have said Amtek Auto, a company, let me repeat the things again in its perspective, along with its four subsidiaries if I include Castex Technologies, Metalyst Forgings, Rollatainers and JMT Auto. The market cap, I have not made the calculation is less than Rs 1,600 crore, aggregate of all five market cap of all companies.
What is the debt of all five companies? Rs 13,000 crore. You have a Rs 14,500 crore as the market cap. Now, when in the heydays or maybe in the normal days, I am not talking of the recent working. If you take September ending, 2015, company had or total aggregate turnover of all five companies was Rs 15,000 crore plus. You will not find a single auto maker from India. They have 30 auto makers all as their client. I am not referring them the global clients. Every auto maker of the world are the clients of Amtek Auto.
Now come on the problem. If you see, that means there is no question on the competence of the companies to make the products acceptable to all the auto makers in the world whether you talk of Maruti or you talk of Mercedes or you talk of BMW or you talk of maybe Mahindra and Mahindra and all that. Now, if I just see the kind of interest having evinced by 21 potential acquirers, I may say that why to, if I want to speculate, I may say that you may have Motherson Sumi Systems, you may have Mahindra CIE Automotive. In fact the potential acquirers are not coming out openly.
Yesterday I have heard Seshagiri Rao of JSW Steel saying about Monnet Ispat. But he did not specify that he has also bid for the company. So no promoter will come forward and will say that yes, we have bid for the company. Even Edelweiss Asset Reconstruction Company (ARC) CEO will say yes, we are exploring. Everyone is exploring. It is a non-binding bid having put in by all. Come on a point of Motherson Sumi having a turnover of USD 7 billion for FY17 and project at turnover of USD 18 billion after two years, that cannot come without the inorganic growth. And Vivek Sehgal has been very confident that USD 18 billion turnover will get achieved not in 2020 but in 2019 itself.
I am not saying that Amtek Auto is on his radar. But what my point here is the kind of growth prospects which are seen for the auto ancillary stocks and this is what precisely I have been or we have been keeping that for last couple of years that there is huge potential seen in the auto ancillary stocks. So similar is the situation here. Whether I get the haircut of 10-30 percent, it does not matter. It is just a matter of a couple of thousand crore of rupees.
And same view has been kept by me on the five steel stocks and on Amtek Auto and again I am repeatedly saying, take it on record in the next one year, you will probably be finding the lower haircut than what has been provided by all the banks put together for these six lenders. I am referring five steel stocks which have been identified like Monnet Ispat or maybe Electrosteel Steels or maybe Bhushan Steel or Bhushan Power and along with that Amtek.
I am not taking the same stand for the other non-performing asset (NPA) stocks like Alok Industries or maybe Lanco Infratech. So take it from me that in the next one year, you will get to know when all these procedures and processes will get completed of the resolution, let us not accept that insolvency means liquidation and dismantling the plant and selling them as a scrap. There will be a insolvency professional, there will be a resolution professional which will get appointed by the insolvency court.
Sumit Sanyal, special advisor to Finance Ministry has been very categorical. Said that this is used as a tool and ultimate intention is to see the resolutions taking place. And again, Seshagiri Rao has yesterday said that probably he is not expecting any change in the promoter which is a very bold statement. That means no promoter is capable to allow the company to go out of its hands.
I have been hearing the analysis of the Essar Steel, having carried out on your channel by Nigel saying that 6.5 million tonne is the capacity. It is 10 million tonne capacity, not 6.5. 6.5 million is only operational and if you take 10 million tonne capacity, the net present value will be Rs 65,000 crore. Essar is not a broke promoter. Will they allow Rs 38,000-40,000 crore not get paid and allow a company of Rs 70,000 crore go out of their hands? No way.
Will they be happy to have the tag of insolvent? No way. Will they allow to have their Rosneft deal of Essar Oil not going through of USD 16 billion? No way. Similar is the case here with Amtek Auto. They are sitting on the quality assets. The net present value of those are estimated by the experts at least to be at USD 4 billion. I am not going on that statements. I am just saying that the potential acquirers are sitting. I am seeing the resolutions to see get happening.
I will not be hesitating and I do not want to try to speculate here. Once the issues get resolved and if you have a one year view, I will not be surprised to see the share of Amtek Auto going to Rs 100 also because there is a quality of the assets. I am not going merely on speculation of the haircut or merely on this thing. Banks have already provided haircut of 40 percent. So what my point is that I must have got 300 queries in these last couple of days that we create panic by saying that the equities are zero value, they are into liquidation, they have no value, the banks have to take the major haircuts. We should be a little responsible while taking a call on the quality of the assets and net present value.
Rs 15,000 crore of turnover for an auto ancillary company is not a joke. This itself shows the kind of quality which is enjoyed by this group. I agree, I am not supporting the group. I have always said that I will not rely on this group who has been saying at least 10 times on your channel from the last 18 months that the resolution of the NPA is in the site in the next couple of months, we are selling our Delhi property, we are selling our coffee retail chain stakes and all that in Tekfor and all that.
You have to, the government now is sitting with the stick in their hands and all these promoters will come on track and will see that resolution gets implemented very quickly. So I am very bullish on the stocks like Amtek Auto, not with a view to take a daily call whether it goes 10 percent circuit lower or whether it goes 10 percent circuit upper. I will not be calling them as a dirty dozen, definitely not along with, I will not be painting all the stocks with the same brush.
So from day one, this is what I have been repeatedly saying for the last one week that I have kept these six stocks aside from this lot or maybe Jaypee Infratech can also get added in that. And this is a similar advice we have given to our members and they all have investments and based on this analysis, we also have investments. Our members also have taken the investment call on all these stocks.
Reema: Where do you stand on fast moving consumer goods (FMCG) names? That is clearly driving leadership today. Emami has had a fairly volatile session. At one point of time, stock was down nearly about 8 odd percent. It has not recovered back in the green. A gain of about a percent and a half. Green all across the screen on FMCG stocks. Which one would you pick at these levels considering the stocks have moved well, the valuations are higher than what we have historically seen?
A: Again, ahead of the monsoon and on the expectation of the normal monsoon, you always see the FMCG stocks moving quite well. We have been taking a positive call on Emami, but let me just give you two stocks on which we have been keeping a highly positive view. I do not say that Marico, Dabur or ITC or HUL are not classifying in that category, but they are seen quite expensive as well.
So the two stocks which are still looking quite good and considering the growth having posted by these companies, one is Godrej Consumer Products and second is the GlaxoSmithKline Consumer Healthcare. These two stocks are looking quite good. And let me just allow me, let me add here the analysis having made by Nigel on Bhushan Steel. As an analyst, you all should have asked the management that why they have not uploaded the balance sheet of March 31, 2017, number one.
Number two, there is not the debt of Rs 50,000 crore, it is a debt of Rs 48,000 crore which includes the working capital of Rs 9,000 crore. Mind it, Bhushan Steel has the highest earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 31.92 percent for FY17 while it was at 30.96 percent of JSW Steel. They are making the auto grade steel but we do not highlight the other part of this one and we cannot just take a ballpark valuation of one billion. Eventually if the capacity is under progress and mind it, they have not been able to enjoy the operating leverages because the working capital is not available to them to the full extent and in spite of that, they had an annual turnover of Rs 15,000 crore from a capacity of 5-5.5 million tonne.
So probably I will take the net present value of the company of Bhushan Steel maybe at Rs 50,000-55,000 crore with a debt of about Rs 36,000-37,000 crore. So sometimes, we blow up the liability figure and we understate the capacity and the potential worth of the stocks. And in fact the management, you as a responsible channel should have asked the management that you have not uploaded the balance sheet and the statement of assets and liabilities as of March 31, 2017, why?
Surabhi: I wanted to discuss one stock with you and that is Goa Carbon. Do you have a view? It has been running pretty hard over the last couple of sessions, three days in a row now.
A: Yes, we have been keeping positive view because the kind of product which they have, Calcined Petroleum Coke (CPC) Green and that is used but we have been having the positive bias on the other products and that is Himadri Speciality Chemicals and maybe after having seen such a big run up, I do not think that the value really lies much in the stock because their Bilaspur plant has been going off and on closing and opening. So I do not think that at the current valuations because when we have recommended the stock it used to rule at about Rs 130-140, so I do not think that now, at the current valuations, we will be giving a buy call. And in fact, those who have bought earlier, we will advise them to go for profit booking.
Reema: Would you take an incremental negative call considering now it appears the state farm loans, state farm waivers are now perhaps becoming a systemic issue?
A: Again sometimes I do not understand that why we love to take the negative analysis. It is very clear, number one that these are all the political move having initiated. Those who have come in power, whether NDA or whether BJP or those who are going to fight the elections. They all are trying to give this. Maharashtra Chief Minister has been very clear that though he was not in favour of this, but at the behest of Uttar Pradesh, he has gone. Punjab again to fulfil the election promises, they are doing this. Karnataka going for election, doing this.
And if you see, yes, this will be seen the slow progress in the recovery of the microfinance loan, maybe with the companies like Equitas Holdings, Ujjivan Financial Services, Bharat Financial Inclusion, but I do not think that majority of them, take the case of Satin Creditcare Networks, when the management came on your channel about 3-4 days back, he has given a credit growth of 60 percent. Bharat Financial is talking a credit growth of 50 percent in FY18.
So I do not know whether we should go for the historical, dull data or negative data or look to the future growth which the management is projecting. So in my view, majority of these microfinance stocks whether you take a call on Ujjivan or Equitas or Bharat Financials, they all seem to have bottomed out. Maybe this kind of sentimental news will keep coming in, but I do not see much effect of that seen happening. Bharat Financial having made a provision of Rs 300 crore in Q4 against Rs 3 crore. Can it again crop up after one year, it can. So it is either to take a call that if you want to have these kind of investments in your portfolio, you need to keep the risk of this loan waivers keep coming in, in every state because these are all the populist moves taken by various parties.
So I am not too worried but yes, I will be keeping my portfolio at a lower level exposed to this microfinance players or those who are more into the agri space. I am not worried for the Bajaj Finance having a rural financial space. I am not worried for Mahindra and Mahindra Financial Services.
So if you are so perturbed or if you are having apprehension on all these moves, you cut the exposure to these three or four companies, that is it.
Reema: What is your view on Kaveri Seed Company?
A: If you want to, because of the monsoon approaching and good normal monsoon expected and all sort of things, the company is going to perform well. But I am not so convinced and happy with these kind of stocks at a very rich valuations. Rather one can always look for the complex fertiliser. But if she is a compelling investor, she can remain invested for the next 3-4 months because of the seasonality and good results which will be seen for Q1 and Q2.
Surabhi: You see any fresh reasons behind the sugar rally that we are seeing today?
A: Again, people have not understood the concept of the growth which we will be seeing in the UP based sugar mills. Let me be very clear. The FY17 has been the record performance. Just to give an example, all the companies, I am talking of the prominent one like Dalmia Bharat Sugar and Industries, Dwarikesh Sugar Industries, Balrampur Chini Mills, Triveni Engineering and Industries, all have shown 4x increase in the bottomline whether you take a profit before tax (PBT) level or you take at profit after tax (PAT) level. Like Balrampur Chini, Rs 100 crore PAT risen to Rs 500 crore PAT.
Take it from me that FY18 will be better than FY17. I will not be able to say whether it will be higher by 10 percent or not. Come on the production front, UP has posted a growth of 25 percent from Rs 64 lakh tonne, in this season UP has produced 86 lakh tonne with the country's production seen at Rs 200 lakh tonne. This year, UP is going to produce, probably they may touch century mark, but take it from me again, 96 lakh tonne is going to be the production which will be seen in the coming season which will start from October 1.
And that is the reason, in fact I have given a buy call on Dwarikesh Sugar also a couple of days back on your channel in the morning show which is already up by 7-8 percent. So if the people have that kind of conviction and faith, they should go for UP based sugar mills because best is yet to come. The sweetness has not gone. But if you panic and keep seeing the import price where the white sugar prices have fallen to about USD 420-424 and you convert that to the import parity price, nothing is going to attract you because the domestic prices are still ruling firm at Rs 36-36.50 per kg in the UP belt. So I am keeping highly positive view on the stocks like Dwarikesh Sugar, Triveni, Dalmia Bharat, Balrampur Chini.