In an interview to CNBC-TV18's Anuj Singhal and Surabhi Upadhyay, SP Tulsian of sptulsian.com shared his views and outlook on the market and specific stocks.
Below is the verbatim transcript of the interview.
Anuj: First thoughts from you on HDFC Bank. Expensive stock, but has always been expensive. Your thoughts on this spike in gross non-performing assets (NPA) and whether the market would take it in its stride. Today, at least it has done that.
A: Actually, you cannot expect these kind of all the parameters to get approved or verified or meet the expectations for the bank like HDFC Bank. In fact, the increase in the net NPA or maybe gross NPA, that is seen negligible, because the kind of growth which the bank has been consistently posting, the operating profit having risen by 30 percent plus and even if you take a call on the current year's earnings, that is the share is I think ruling at a price-earnings ratio (P/E) multiple of maybe 25-26 times and the sub price to book of less than five and that has been in fact the continuous historic P/E multiple and price to book being given to these stocks.
Sometimes, we get carried away with the newly listed like AU Small Finance Bank, I am not trying to criticise any new listing where price to book of 10 and all those irrational valuations being given. But I think HDFC Bank stands out as the best bank and if you really see the profit after tax (PAT) growth of maybe 20 percent or maybe operating profit of about 30 percent, has been continuously demonstrated, I do not know for how many quarters, maybe 16, 20, 24 and that is really credible for the bank to having posted these kind of numbers.
And in fact, maybe the banks like many of these banks where the marginal increase in the asset quality has been seen whether you talk of RBL Bank, Kotak Mahindra Bank, HDFC Bank, honestly, I am not worried because those are just a matter of prudence, the corporate prudence or maybe the fiscal prudence, in fact that has been exercised by these banks. And coming on HDFC Bank, yes, continue to remain positive, but these are all, now have become a portfolio kind of stocks which will keep giving you the continuous or maybe the consistent gain of maybe about 16-18 percent or 18-20 percent on an annualised basis.
Anuj: Your thoughts on the defence space because we have heard a lot about the defence rerating, but can it be played via any of the listed stocks?
A: I am extremely positive on this and this seems that this news or this sector or this upsurge which we can see in this sector has not been yet tapped by the market. And in fact maybe somebody wants to have a pure defence play then probably the one PSU which comes to the mind is Bharat Electronics (BEL).
And in fact if you see the stock having moved in this last three months from Rs 150 to a level of Rs 175, now seen having consolidating in those levels, I am not saying that if you see the company on its own, I am not playing much on the joint venture or maybe the strategic investment kind of things which we have seen in case of BEML, but if you see the independent business of the company that is doing extremely well and apart from that, three companies come to my mind which is, one is L&T, second is Bharat Forge and in fact these two stocks looks very good. And third is Mahindra and Mahindra.
But again, in Mahindra, there is no identified listed stocks available, but I am extremely positive on Bharat Forge because the kind of foray they have with the Israeli, joint venture having been entered into. And similar is the case with Larsen and Toubro because if you see the Mazgaon dock have delivered one submarine and there are six submarines lined up for that scorpion deal, if you recall about five six years back, the things have got shelved or got delayed and all sort of things. So I am extremely positive on defence. If you take the sea, air or land, in fact for all three equipments, the kind of purchases which will be made by the Indian government in the next 4-6 years, I am extremely positive on this sector.
Anuj: Aurobindo Pharma is one of your favourite pharma stocks, one of your three favourite stocks. The other ones have been Glenmark Pharma. So at current price, is Aurobindo a good buy?
A: Since he is a long-term investor, he wished to buy it for long-term, I will advise him definitely to go for it because if you take a valuation call, the share is now available, maybe I am expecting it Rs 48-49 earnings per share (EPS) for the current year. In fact the kind of news flow on the US Food and Drug Administration (FDA) in terms of the new approval, the pending filing and all that are really making this stock look very good. I am not disturbed with this US FDA one or two units kind of inspection happening.
Overall, things are looking quite positive. As I said, Rs 48-49 could be the EPS for current year. I will not be surprised to see the EPS ramping up to about Rs 55-56 for FY19. So if you take that call, the P/E multiple works out to about 15. Already we have seen the pharma stocks having bottomed out. We are not giving a renewed call on the pharma stocks. We are, in fact, taking a pause that wait for some time. But those who wish to buy any of the pharma stocks, you are right that the first choice comes to our mind for recommending as investment is Auro Pharma followed by Glenmark.
Surabhi: What do you think about Reliance Communications for the long-term? There are people out there looking to find the next Jaiprakash Associates hoping to get the next trading flip if nothing else. But Reliance Communications, given what is happening with their loan standstill, etc. is it worth buying?
A: No, not at all because I think people just get what you call, carried away with the movement of one or two stocks. In fact when we have advised JP Associates and Jaypee Infratech in this last four months, they have risen by 100 percent. And at that time, the wisdom of recommending those stocks were questioned by many of the people because they were all calling it equity value as zero for the stressed assets and all accounts. In fact in Reliance Communications, I do not think that any kind of hopes are seen visible. In fact I have my apprehensions where the media and the analysts have been calling it transfer of Rs 14,000 crore debt to the joint venture Aircel as a repayment.
So unless and until there are any concrete steps having taken by the company, I am not keeping any positive call. And in fact maybe in the space or in the same league JP Associates and JP Infra, in fact we have recommended three and four other stocks also which have already risen by about 20 percent and they can in fact rise further. So remain away and avoid applying the same thing to any stressed assets in general.
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