In an interview to CNBC-TV18's Anuj Singhal and Surabhi Upadhyay, SP Tulsian of sptulsian.com shared his views about the fundamentals of the market and specific stocks.
Below is the verbatim transcript of the interview.
Anuj: First thoughts on Hindustan Petroleum Corporation (HPCL), Oil and Natural Gas Corporation (ONGC), Mangalore Refinery and Petrochemicals (MRPL) saga which is going on. We are maybe towards the last leg of that. Thoughts on how to approach this entire segment?
A: I kept expressing my view in this last one month because the developments have all been talked for the last one month and I have said that as long as HPCL remains a listed entity separately with ONGC being the holding company, I do not think that there will be any kind of issues with HPCL. On the contrary, that will be seen positive. But still the broad contours are not there. The government seems to have only given a nod for ONGC to acquire 51 percent stake which is held by the government of India. But whether that will be by holding some subsidiary or by merger of HPCL.
So if the merger of HPCL happens with ONGC on a broad front, that will be seen quite negative because in that case, the shareholders of HPCL will get swapped with the shares of ONGC and I do not think that now, anyone is in mood to acquire the shares or buy the shares of ONGC in view of the crude price scenario going ahead and with the stagnation of the financial performance of the company with no subsidy burden kind of things seen existing.
Coming on MRPL, still there is no clarity because HPCL is holding about 17 percent stake in the company, ONGC is holding about 71-72 percent stake in MRPL. So still things are not very clear, but it will be very logical and very appropriate for the ONGC or maybe for MRPL to get that amalgamated with HPCL.
So what will happen, eventually ONGC, if MRPL gets merged or amalgamated with HPCL, the stake of 17 percent HPCL can get extinguished and 71-72 percent stake of ONGC can get swapped with the shares of HPCL. So in that event, the holding of ONGC in HPCL can get raised to a level of about 58 percent from 51 percent to 58 percent because there is no point in retaining a standalone refinery without having any marketing outlet and if ONGC continues to be the parent or maybe the holding company for both on a standalone basis with both the companies continue to be as listed, there is no point in holding 51 percent and 71 percent in MRPL.
So logical would be that amalgamate MRPL with HPCL and let ONGC eventually increase their stake to 57-58 percent in HPCL and allow HPCL to remain as an independent listed company being subsidiary of ONGC.
Anuj: Thoughts on Bajaj Finance, one of your top picks, I believe?
A: We recommended this stock during demonetisation when there was lot of shouting, hue and cry on all non-banking finance companies (NBFC) and at that time, it was ruling at Rs 800 and I do not know how much we all expect when the stock has already hit closer to Rs 1,600. If an elephant can give you return of 100 percent in maybe about six months or so or maybe 7-8 months.
But phenomenal financials, if you really see the situation and see the management commentary that Rajiv Jain is saying that if you can cope with our organic, forget inorganic, there is no need for that and if you in fact, the company has presented, given the presentation of compounded annual growth rate (CAGR) for last 10 years, in fact they should have more focus on last 3-4 years so as to demonstrate the growth even if the absolute number would have been lower, but at least that would have demonstrated the higher CAGR on the higher base.
But coming on the ultimate, whether you talk of the assets under management (AUM) growth or you talk of the profitability growth, I do not have my doubts of about 30 percent growth to be seen for the next three years or so, the kind of roadmap which they have lined up.
In fact if you see the company having given commentary at the time of Q4 results, that was so dull and little dull and little disappointing, but this time, the total tone or the body language of the management has changed and what really inspire or attracts me is that Q1 numbers which has not seen the rural, Bajaj Finance basically has the rural penetration and you have not seen the fruits of the rural spending seen coming in which will effectively be seen in Q2 and Q3 because of the good monsoon because of the festive season and one can imagine the numbers of Q2 and Q3 to be seen and I am extremely positive.
I am not disappointed that after the results, share has corrected by Rs 30-40 because see the run up which we have seen in just the last one month in share price as well. It must have risen by more than Rs 100-150 in the last one month.
Surabhi: Any thoughts, any rationale that you would sight for this exuberance on these telecom names?
A: Maybe some hopes of the payments by the government to get staggered because that has been the presentation that the company otherwise will really go into the bad financial health and the NPA kind of things will start. So probably that may be seen to be the only hopes on which these shares will be moving up. But I will not be taking fundamental view on any of the stocks for investments.
Anuj: Your thoughts on this news flow because you have also tracked steel stocks and in the past, you have recommended a couple of midcap steel stocks on the channel.
A: I am extremely positive on the sector. Just to give you one, since you have said that yes, I have recommended few stocks on July 7 on the morning show of CNBC-TV18, I have recommended Prakash Industries at Rs 108 and today, it has met the target. 25 percent gain in just maybe a couple of weeks. Now if you see the results having seen of Prakash, I am just giving you one of the examples, they are not in flat products, they are more in long products.
And if you see the results for Q1 having posted by them, I will not be surprised to see them posting an earnings per share (EPS) of closer to about Rs 24 with debt reduction falling to a debt to equity ratio of maybe 0.2 or 0.22. In fact many of the ideas were recommended by us on the channel, maybe like Sunflag Iron and Steel Company, maybe Sarda Energy and in fact, we are keeping a quite bullish view. If you come on the capacity addition, except for the Kalinganagar steel plant of three million tonne by Tata Steel in the recent, I do not think that any capacity additions have really come in.
And that was the reason of my bullishness on the five NPA steel accounts also. If you see the situation, Essar Steel is operating at a 81 percent capacity utilisation which is again an unlisted stock and in case of other companies also, the capacity utilisation is moving up which otherwise were all operating at an average of about 70-71 percent. It is just an estimate that yes, the demand will grow by 5-6 percent, but looking to the demand seen coming in, in the long products because flat products are all linked to the automobiles and consumer durables so it can be more accurate in predicting the demand there in case of flat products, but long products will really demonstrate very good growth in FY18.
So keeping this all into consideration and the one more best thing about the domestic companies, more specially on the long products, in fact all these companies are not having the linkages for the coal and iron ore whether you talk of Sarda Energy, whether you talk of Sun Flag Iron, whether you talk of Prakash Industries, I am not touching the larger players like those who have the presence or those who are integrated or more into the flat like JSW Steel and Jindal Steel. On Jindal Steel, I am keeping extremely negative view because of the huge debt and the kind of mess we have been seeing in the performance. Tata Steel is again a culprit of Corus not seeing any kind of improvement and unlikely to see the improvement.
So in that space, you only are left with one stock in the larger one that is JSW Steel. But extremely positive on the midcap, maybe we have recommended many of the stocks in the past as I said, like Godawari Power. So I am keeping a positive stance on the steel stocks and that is the reason in fact we gave two or three steel stocks in this last maybe one month on the channel and one of that has already given 25 percent return in less than two weeks
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