In an interview to CNBC-TV18's Sonia Shenoy and Anuj Singhal, SP Tulsian of sptulsian.com shared his readings and outlook on the fundamentals of the market and specific stocks.
Below is the verbatim transcript of the interview.
Q: I wanted your thoughts first on ICICI Bank. You have seen a 10 percent rally here. Would you expect more?
A: Coming specifically on ICICI Bank, if you really see that definitely there has been two or three sweeteners on the asset quality, provisioning, maybe that unexpected 1:10 bonus issue which market or maybe the analysts have not much talked about. But honestly, if you really ask me, I have heard you in the morning also giving opinion on the positive bias. Positive bias was seen, but the over-exuberance of or if you take the contribution of ICICI Bank, it is singlehandedly on a net-basis, about 47-48 points are contributed by ICICI Bank to the Nifty, I do not think that these kind of upmoves is really seen warranted.
But as I said, no disappointment on the asset quality front and actually the RBI or the cabinet committee which has approved the recovery or having empowered the RBI to recovery the amounts of the stressed loan, that will be seen quite positive. So, it is a combination of all the factors, number one.
Number two, it has to do with the expiry management also of the Bank Nifty which is happening today because if you see, last week if I am not mistaken on Thursday, the expiry of Bank Nifty happened at 22,200 and that itself was looking quite stretched. And after that, we have seen a rise of about 500-600 points. I am probably expecting that this momentum has to do more with this.
If the RBI comes and actually I am very positive on this RBI move because they will, this time, be very ruthless. Let us not expect that we will be having dilly-dallying with the defaulting promoters. You have 8-10 promoters. The clear cut guidelines which we are getting inside informations that about 15-20 promoters will called by RBI and they will be given a clear message to clear the debts or the defaulting amounts or maybe the alternatives will be exercised.
So, in that background, ICICI is definitely seen to be a big beneficiary. Even they had their problems and all that. I am satisfied with the numbers. I am satisfied with the unexpected bonus having announced, but I think that probably this has got reflected more than what the bank deserves into the share price. Probably it has to do with the expiry management though I may be wrong. So, from tomorrow I may be a bit cautious that profit booking may be seen, but yes, things are as of now, fully priced for ICICI Bank.
Sonia: For Exide Industries, this time around, we have seen a double digit revenue growth for the fourth consecutive quarter and the management commentary is quite positive as far as the revenue trajectory is concerned. At Rs 232, how would you be positioned on this stock?
A: Again, you have rightly summed it up that the topline growth which we have seen Rs 2,200 crore plus is really remarkable. Actually market is not too bothered about the margins though the margins are not disappointing. The sub-Rs 2 earnings per share (EPS) for the quarter, I am only referring for Q4, but the topline growth has been seen quite robust for the company.
We knew that the raw material prices of led which is the main raw material for the battery makers are seen to be though the battery makers have been kept passing these increases in the form of increase in the battery prices having taken place in this Q4 two or three times. Amara Raja Batteries, as well as Exide. But actually if the market, what is happening now that if you do not have any kind of disappointment or big negatives, then the market is overlooking all those things and prepared to give you a valuations.
Take the case of Ceat tyre. I was just going through the numbers which came about three days back. There was huge disappointment but market has reacted positively.
So maybe because of the technical stance and because of the topline growth and which actually, I am equally impressed and I am keeping a positive view on Exide industries going forward including Amara Raja both, the topline growth is really phenomenal and if that continues, the kind of growth which we have been seeing in this one, in the automobile segments, including all the auto ancillaries, things are looking good and I am quite happy and satisfied with the results, not so much on the margin fronts, but yes, on the topline fronts, the things are really quite good.
One may argue that the stock is looking quite expensive, but both the duo in this space, in this sector that is Amara Raja and Exide have always ruled quite dearly and I continue to have the positive bias.
Anuj: We were discussing fertiliser stocks. You track these stocks fundamentally, but is the market betting too much on the change of government, the current regime? Is that why we are seeing this kind of rerating in fertiliser stocks and would you be betting on any of these stocks?
A: There are two or three things which we need to understand for the fertiliser sector. Firstly, we are quite positive on the phosphatic based fertiliser. I will not be taking that equal bullish view on the pure urea maker. Now just to come on that point, if you first take a call on that, Coromandel International had come out with the results recently, maybe three days back where they have posted an EPS of Rs 17, I am not going into the quarter which has shown a growth of about 66 percent in the operating profit on year-on-year basis.
So, if you take these type of things, take the case of Gujarat Narmada Valley Fertilizers & Chemicals (GNFC), GNFC is making again, there is talk that anti dumping duty is being talked of, government may levy because of the too much import of Toluene Di – isocyanate (TDI) happening from the South-East Asian countries. So probably because of that GNFC is into the news. Gujarat State Fertilizers & Chemicals (GSFC) again for the caprolactum that some more contributing than the complex fertiliser.
So, what my point is that overall yes, there is a quite positive view on the complex fertiliser maker going from here on in which space you can include Coromandel International, you can include Tata Chemicals or you can include stocks like GSFC. But I will not be too equally positive on the stocks like Chambal Fertilisers now having seen the stock moved by 16-17 percent, no doubt that they are taking the asset monetisation move, selling their ship and all that which will not fetch, maybe there will loss on the sale of ship as well over the book value.
But I will not be painting all the fertiliser stocks with the same brush. Maybe even Rashtriya Chemicals and Fertilisers (RCF) falls in the same category though they have a presence in the complex fertiliser, but that presence is quite small as compared to urea because their major presence is more in urea they have plant at Thal at Alibag.
So, my point is that yes, keep a positive view on phosphatic acid because now, what is happening onward of this government policy that they want to have the combination of NPK – nitrogen, phosphatics and potash, all three must be used in a proper combination and those who can offer that kind of product mix to the farmers, they will be having the higher margin because of their product mix innovation or because of their depend on crop to crop.
So, I am keeping my positive stance, but few and selective basis, like GNFC, GSFC for other reason for caprolactum and TDI, expectation of import duty being levied or maybe dumping duty being levied or on the stocks like Coromandel fertiliser or Tata Chemicals going forward from here on.
Anuj: Thoughts on MRF? Earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 15 percent, there are so many headwinds, but of course, the stocks keep making new all-time highs.
A: We have discussed a while back on Ceat and actually I tend to defer here. If you see, probably I will not have the commodity chart in front of me, but if you see, the companies have enjoyed the lower rubber prices of closer to about Rs 140, practically for the whole month of March because since then, the prices have started correcting and actually that kind of benefit it enjoyed by the companies for the last one month of Q4 or maybe for the last two months of this period.
So, there is definitely disappointment. I will not subscribe to this argument of the margin shrinkage, purely because of the increase in the rubber prices because as I said that commodity prices have started softening, number one.
Number two, if you do not have the volume growth, someone is eating your share and we have discussed a while back that Ceat again which is a prominent stock, which is a leader or maybe after MRF, they have disappointed on that front. Third company which I closely track and again, it is not talked as a tyre stock but that was Kesoram Industries. Again Kesoram have posted disappointment because they have shown good performance. I am not worried for Q3, but Q4 these kind of results at least I was not expecting from the companies and the best part is that in spite of these having these type of disappointing numbers, the shares are not correcting.
Case in point was Ceat tyres, but I think that probably technical factors may not continue to last for a very long time. The tyre stocks are seen having practically reached to its peak levels for all the tyre stocks.
Sonia: We have discussed this space quite a bit, but do you think the best of the returns have already been or the easy money has already been made in this sector or would you still look at this entire pocket as a buy on dip?
A: In fact I have been throwing caution on the tyre sector maybe for the last 15 days or maybe last couple of weeks, but since then post that also, the stocks have risen. And in fact if you see, these kind of performances coming in, the channel has just now plotted nicely the fall in the margins.
And if you see, confined only to FY17 where the margins have continuously fallen and you see the stocks prices are hitting at all-time high and that too when the commodity cycle is at its lowest, when the rubber prices are seen ruling at 140 where the rubber prices or maybe the rubber growers are seen screaming, that is number one.
Number two, if you really go situation, take going forward, I do not think that you can just rely on the northern and western for the agrarian economy to really move to see, because that market share will be probably be taken away by the companies like Balkrishna Industries who are more into the tractors or maybe the off the road tyres and all kind of things.
A company like MRF has to really fire on all cylinders. They have to see growth in two-wheeler, growth in three-wheeler, growth in commercial vehicle, passenger vehicles, so I will not be jumping because in fact, we have the past instances, stocks have swiftly corrected by 15 percent. In fact that situation, forget traders, even investors get shivers in the spine because you cannot see this kind of fall correcting. Maybe the stocks can bounce back, but do you have that kind of conviction at the highest point, at the highest level.
Probably the historic high when the margins are seen continuously on a falling trend because I was not expecting margins at least to deteriorate on a sequential basis in Q4 as I have said that because of the soft rubber prices which we have seen in the last at least 30 days of the quarter, so I am quite cautious and I am quite will keep a cautious and avoid taking a buy call on any of these tyre stocks.
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