In an interview to CNBC-TV18's Anuj Singhal and Reema Tendulkar, SP Tulsian of sptulsian.com shared his readings and outlook on the market and specific stocks.
Below is the transcript of SP Tulsian's interview to Anuj Singhal and Reema Tendulkar on CNBC-TV18.
Anuj: You were talking about it two days back, before inclusion of Infibeam Incorporation in Futures and Options (F&O). I remember you had said this stock does not deserve to be trading above Rs 200. But what do you think happened today? For the first 4-5 hours, there was a 60-70 point discount that prevailed in the Infibeam Futures and now, even the cash market stock has fallen.
A: Firstly, referring to your remark that this is a brutal fall, I think this is a soft fall. The brutal fall has to be seen in the stock going ahead. Because if you first take a quick case on the fundamentals of the company, they are into two things, one is e-commerce and second is trading in the software products. On the e-commerce they are making losses, maybe on the earnings before interest and taxes (EBIT) level, maybe losses of about 5-10 percent and the company is showing a profit of about 55 percent EBIT margin of 55 percent in the trading of the softwares. I do not understand that from where you can really make this kind of money, number one.
Number two, coming on your question of discount having narrowed down or maybe in the morning, there was discount of Rs 40-50 in the future and both are ruling at the same price because obviously, just to give you the example of Kushal Tradelink, the stock which to one-side moving up where also I have cautioned in the past and when the stock started correcting, then you have seen the stock having already corrected in the case of Kushal Tradelink because what happens in this case if you take the shareholding pattern of Infibeam, practically the entire stock is held by few people. Maybe the public float is just 1-2 percent.
I am not saying that that specific case applies here. I am not trying to put any kind of allegations or casting any aspirations on the price behaviour. But what generally happens that we see in these type of things, the promoters or maybe the interested parties jack up the price by taking the financials or giving the commitments. And once that starts getting broken or they are not able to honour those commitments, the people those who are into the cash segments, they start offloading.
The things will not stop here one way. Maybe things will see that stock is bouncing back again but I have referred maybe two three days back is purely based on fundamentals that the share does not deserve a fundamental valuation of more than Rs 200 and I stick the same way because if you are seeing any company just dressing up their financial performance by showing the trading income, as I said, I think, I am not very sure about Rs 60-70 crore profit as shown in the trading of the software for the current nine months of FY17, one can easily analyse that things are all looking fishy at the financial levels, at the financial results level and that is a reason I am keeping my negative stance.
And because once it has come into the F&O, I think that is a very sensible move on part of the stock exchanges because if they cannot take regulatory actions by putting the stock in the F&O because it had a market cap of Rs 6,000-6,500 crore, they have rightly taken this decision that the efficient price discovery will automatically get discovered because people will be going short. Definitely it will be the test of this strength will be seen between the operator and the new traders. But I think this kind of weakness which we have seen now is just soft. The further weakness has to be seen in the stock which should make it correct to a level of maybe Rs 200-250.
Anuj: This non-banking finance company (NBFC) space, there is no stopping this rally. Equitas Holdings is up 4.5 percent, Capital First is up 8 percent. Do you get a sense this is a case of just too much appetite for some of these stocks, especially now that they are available in F&O, Muthoot Finance as well for example is available in F&O now.
A: Two or three things. Firstly because looking to the growth we are expecting to see in this NBFC, obviously the growth leads to the appetite and that is what is happening and I have been repeatedly saying that and during demonetisation also I have been repeatedly saying that probably all the NBFC and micro-finance stocks are looking excellent and they have all rewarded more than 30 percent in this last maybe three months post demonetisation if you take the situation going forward, number one.
Number two, generally it is seen that whenever a stock gets introduced in the F&O and if it has fundamentals, Infibeam is an exception, if it has fundamentals, then a lot of long positions get created, but those long positions get liquidated maybe at the end of expiry. I am not saying that Capital First is looking weak, but I will not be surprised to see the share going up maybe till tomorrow or maybe in the next 2-4 days where it will peak out and maybe I will not be surprised to see the expiry happening maybe at a level of Rs 750.
So, it will always be risky to trade in the F&O just in anticipation that the share will keep moving up one way till expiry post its introduction in F&O. now, from today, if you see, 3-4 stocks having got introduced in the F&O that is Equitas, Ujjivan Financial Services, Capital First and Muthoot Finance and in fact, we have been keeping positive bias on all. But if you take the two preferred choices which we will be rather going for, one is Ujjivan and second is now Muthoot Finance at the current valuations because Equitas, if you see, there has been, in this last maybe couple of months or last three months, we have seen strong hands having exited from Equitas and have move to Ujjivan because of the more comfort on the valuations and the growth to be seen in that company.
Capital First continues to remain as an evergreen stock. People have been because of the retail presence, very good asset quality and all sort of things, but at the current valuation of close to about Rs 800, I will not be taking a call and if someone has invested in the stock, I will not hesitate in advising them to go for profit booking in Capital First, not today but maybe at a level of Rs 810-815 or so.
Anuj: Is this move on Reliance now getting overdone? Rs 1,327 is what we have now.
A: I think Rs 1,350 is seen to be the outer level and if you remember when this SEBI order came in, you asked me, I say that Rs 1,250 seems to be a good support and Rs 1,3500 seems to be a good resistance. And broadly, the stock has held in that range in spite of the negative having built by many of the people on the Reliance Industries, I say that probably I do not look any further weakness. Maybe because of this Reliance Jio subscription because I have been expecting that probably the renewal of 66 percent to 70 percent will be seen in the Reliance Jio renewal, not beyond Rs 7 crore. But suppose you get to know that figure one day that the renewal has crossed beyond Rs 7 crore, the probably some upside is seen left in the stock and it may move to a level of Rs 1,350 as well. But as of now, I do not think that it is overdone as long as it remains within the range of Rs 1,350 or so.
Reema: What do you think about the acquisition that Infibeam is making?
A: You have correlated the performance that yes, the e-commerce companies are going for payment gateway stakes and all that, but if you see the e-commerce, I have already said that, no surprise on that all the e-commerce companies are making losses on the EBIT level. But if you see the turnover of this company on an annual basis, from the e-commerce segment, I do not think that is more than Rs 1,000 crore when we have been seeing the giants making on a special day, where the schemes are all announced, the sales of USD 1 billion also in a single day and if this company is making Rs 1,000 crore on an annual basis, I do not honestly understand the logic.
And unless and until you have the clarity, I do not know, you have said that they are acquiring about 12 percent stake because these are all kind of confusion or maybe news flows will keep coming in just to support the share price. And as I have said that if you have the profitable business, you have already analysed that Rs 7-8 earnings per share seen for nine months which has again come largely if you really ask me as I have already explained, that if you have Rs 65 crore from trading on the software being margin of 55 percent, can you rely on those figures? So I will not be giving any credence to this news as well which can fundamentally increase the valuation of the share.
Reema: Oil marketing company names like Indian Oil Corporation (IOC) doubled in the last one year. What is the set up looking like for the Oil marketing companies in the coming year?
A: Positive view on all three oil marketing companies because if you see the situation, I do not think you have any kind of concerns except this news of merger of Hindustan Petroleum Corporation (HPCL) with Oil and Natural Gas Corporation (ONGC) and all that which has not got liked by the market because even I have been having my reservation because there is no synergy of ONGC an exploration company upstream taking over an oil marketing company. If there would have been merger of HPCL and Bharat Petroleum Corporation (BPCL), probably that would have been more synergistic. But if you really take the situation, I do not think that government will really be in a hurry and will be taking any hasty move which will destroy the valuations. So, keeping that in mind and the freedom of the prices and the marketing margins seen intact of all these companies, I am keeping positive view on all three oil marketing companies with pecking order of HPCL, BPCL and IOC.(Disclosure: Network 18, which publishes moneycontrol.com, is a part of the Reliance Group.)