In an interview to CNBC-TV18's Anuj Singhal 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.
Anuj: TVS Motor Company, 6 percent higher now. Back to lifetime highs. Remember, we were discussing this that maybe that day's reaction was maybe overreaction, but what do you make of this move on TVS Motors because regardless of what it does with its margin picture, it just making new highs and at Rs 600, what would be the call now?
A: Two things. Firstly, I do not understand the logic of the estimates which we get to see which we get to see on the channel that all these projections have been made. If the company is giving you an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 7 percent plus and in fact on the result day you are right in saying that I have said that I do not see any disappointment having come in from the company from Q1 numbers with EBITDA margin of 7.1 percent against 7 percent, number one.
Number two, if you are having a better market share, you cannot expect your margins also to expand and that too in the competitive atmosphere. And going ahead, if you see the product launches and the kind of consistent growth on the monthly sales which is seen reflecting was not giving any justification for these kind of estimates. On that day I have said that if you take the 19 percent growth on a quarter-on-quarter basis and if the street is expecting the EBITDA to rise by 40 percent and maybe profit after tax (PAT) by 40 percent, it is bizarre. Then probably the estimates or the experts have to be a little careful in taking the estimates call. That is number two.
Number three, if you really go forward and take a call on the company, company probably will keep their eye on increasing their market share and once they hit the 3,00,000 mark monthly sales, till then, I do not think the margins expansion will really be the key for them. Maybe the higher end segment, launches in that segment and thereafter. So probably FY18 is going to be seen with an EBITDA margin of closer to about 7 percent which we have been consistently seeing from the company.
And in fact, the volatility, if you take the price behaviour immediately after Q1 numbers, probably the same pattern is being seen maybe for the last 3-4 quarters, as far as I remember that always the high street estimates has been seeing the stock correcting by about 8-10 percent swiftly and then again going back to much higher level than from where it has corrected in the next maybe one week or so.
So same kind of pattern, I am keeping my positive bias but I will not advise the renewed buying. On that day, on the result day I have said that those who are having a little kind of patience or courage must use this opportunity of dip, but today I will not advise buying at current level, but yes, the situations are looking positive for TVS Motors, those who have been holding the stock from a longer term point of view.
Anuj: What is happening with Tata Global Beverage? It is third day running that we have seen this kind of gain on Tata Global. Up 25 percent in three days. Warranted?
A: Two things. First the monetisation or maybe exit from the Himalaya or the non-branded portfolio which the company has announced and good Q1 numbers. But I have said that I will not be taking the fundamental call for the simple reason that if you see the two business which company eventually will continue, one is coffee and one is tea. And if the tea prices globally are seen rising and you do not have your own plantations because company has consciously exited from the plantations business 4-5 years back and they are purely the marketeer of the business and having a global presence.
Very good market share in Australia, very good market share in US, very good market share in Europe. So I will not be accepting this kind of upsurge having seen in these three days and warrants a buy at the current price. And in fact those who have been holding it because in the past, we have seen the share price not hitting to these levels. But they have not been seen sustaining because if there is 57-58 percent subsidiary in coffee business, has not performed very well, Eight O'Clock Coffee, the subsidiary of Tata Coffee in US has also not performed well.
So I will not be keeping a fresh buy call at the current level and in fact those who have been holding it and got this good profit, they should really look to book profits because if you see the kind of profit booking coming in, maybe at some point of time, after a week or a couple of weeks, that will not be surprised to see that coming in.
Anuj: Two of your favourite names, both of them surging right now, Bhushan Steel and Amtek Auto, but I wanted your thoughts on what this would mean from stock market point of view, if the lenders are exempted from making an open offer.
A: Two things. I think this is a very wise move on part of SEBI that the prospective buyers are allowed to exempt from the open offer. If you take the situation, suppose hypothetically, if someone is acquiring a company, Bhushan Steel giving some offer say at a valuation of Rs 60, definitely with the potential acquirer coming in, you will see the shares just shooting up maybe by 25-30 percent, whoever comes, whether it is Piramal Enterprise or JSW Steel or Vedanta or any private equity (PE) investor or any kind of things, we have been hearing those names. So SEBI consciously knows that that will just be academic. The call of the open offer or that will just be academic, number one.
Number two, that may dissuade the prospective buyers. So why to have such academic provision which does not serve the purpose, so excellent move.
Second, move could be that the promoters may be allowed to increase their stake in the company at a pre-determined price, at the price which they valued. That means, suppose if a prospective buyer has valued Bhushan Steel at Rs 50 per share, and after the acquisition having completed, share price has moved to Rs 100, the acquirer will be allowed to issue further shares to themselves at Rs 50 only.
Anuj: What about PSU banks? Do you still buy some of these stocks at current prices?
A: I have maintained that in the past also when in fact all these stressed accounts were ruling at about maybe 30-40 percent lower that this will be seen quite positive for those respective 5-6 companies. And companies which I have said at that point of time were Monnet Ispat, Bhushan Steel, Amtek Auto and Jaypee Infratech. So I reiterate the same view that it will be extremely positive.
Coming on the point of the point of the open offer and all that, I do not think that this lender part is really applicable because here it will be for the prospective acquirer also. Maybe one has to read the fine print because lenders do not come into the picture. If you really take the situation, strategic debt restructuring (SDR) has only been exercised by the bankers only in case of Monnet Ispat.
And 18 months already having elapsed, SDR says that they have to find out a new buyer within 18 months that has not happened. And in fact maybe the exemption has already been there for the lenders. So, anyway leave aside those things, but I am seeing this extremely positive for the companies respectively and obviously because I am keeping a positive outcome from these resolutions of these 4-5 accounts. So maybe the relief to the bankers will also be much more and I am in fact expecting they need not be providing more amount what they have already provided in those 4-5 accounts.
Surabhi: After a while, we are seeing a slight move back on tyre stocks as well. We have spoken about the first quarter howler that most of these companies delivered. Is there any interest at all on tyres, even for a momentum play?
A: After seeing the results of Ceat, MRF, Apollo Tyres, and yesterday or day before of JK Tyre, I do not think that you have any fundamental reason to take a call in all tyre stocks. But yes, because this type of news of anti-dumping duty kept coming in and I do not know, maybe whether this is just a trading momentum or the strong grip of those who have been holding this stock. Otherwise, there are no fundamental reasons to take a call on these tyre stocks.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
