Here are SP Tulsian's top trading picks

Number two, since you have referred on the net worth, the equity has been stated that somewhere at around Rs 67,000-68,000 crore with a debt-equity ratio of 0.67:1, that gives that means that the debt is about Rs 45,000 crore and net worth or maybe the equity is Rs 67,000 crore. So, I think that instead of equity Rs 67,000 crore, we need to know the net worth that what is the net worth because if you go by the ballpark number which has been indicated from the press releases and whatever has been gathered, the company has made an investment of over Rs 2 lakh crore. And if you take Rs 67,000 crore as the base and take the debt-equity ratio of 0.67, that gives a total capital expenditure (Capex) or total value of Rs 1,30,000 crore only.

So, I think that as such, these data is not relevant at all because ultimately, as I have been stating repeatedly that the interest and depreciation, two things will really be playing a very important role for the Reliance Jio financial performance because I have not been taking on the earnings before interest, taxes, depreciation and amortisation (EBITDA), the margin or maybe the EBITDA margin because I do not think that EBITDA margin is relevant for any projects where there is huge Capex involved as I have stated of more than Rs 2 lakh crore which is in the case of Reliance Jio.

So, I will not be taking these numbers as too seriously. They are just a passing number which has not reflection in the ultimate numbers to be declared by Reliance Industries this evening.

Sonia: The stock and the sector of the day undoubtedly is cement. ACC's volume numbers at 4 percent growth, did it surprise you and would you raise your target prices on some of these names like ACC, UltraTech Cement post their earnings?

A: If you go by the 4 percent volume growth, definitely that has surprised me because actually the growth has been seen there. In fact, if you recall, since the demonetisation or maybe after 15 days of demonetisation, the ground picture was giving a different story and come January 1 thereafter, we have really seen a big offtake seen happening in case of cement. And actually, if you really take a call going forward for the Q2 also because the consumption of the cement is going to remain quite robust up to June 30 because though you do not see the monsoon reaching pan-India by June 30.

So, yes, 4 percent growth on ACC is very important and apart from that, I will not be taking too much concern on the margins having posted. Even they have all started strengthening because I will not be taking, whether you take the case of UltraTech Cement or ACC, I will not be taking the margin comparison on a year-on-year (Y-o-Y) basis. One may argue that these are the relevant data, but even if you go by the quarter-on-quarter (Q-o-Q) also, because Q3 is also seen to be a good month. One may argue that because of the demonetisation things have not seen reflecting onto the quantity, but on the margin front also, for this Q4 the company, both ACC and UltraTech have performed very well.

And actually the material fact for the cement companies going forward will be the quantity growth. I think the profitability because if you see operating leverages, all these companies are operating on an aggregate basis, at a level of sub-70 percent and if you have a growth of about 5-6 percent, that translates into a huge expansion in the margins for the company. So, I am quite happy with the performance having seen from ACC and even the financial results from UltraTech Cement.

Anuj: Let us discuss sugar sector. A sector where we have seen a huge rally over the last 6-12 months. First, why has Indian Sugar Mills Association (ISMA) stopped giving the fortnightly production numbers because that used to be a bit of a cue for us in terms of what is happening with the sector? Any ideas why ISMA has stopped giving those numbers?

A: I may not be having answer for that, but if you really see the behaviour of ISMA since the start of the series and the kind of projection they have given. First they gave of Rs 234 lakh tonne for the season which will be ending on this September 30. Then they reduced it to 213 lakh tonne and then they reduced it to Rs 203 lakh tonne. And you are right in saying that they have been giving fortnightly production figure for all India, but same figures have not seen for the fortnight ended February 15, fortnight ended for February 28 and fortnight ended for March 15 because if you see the situation going forward, because if you recall, about maybe a month back when Mr Verma, the Director General of ISMA was on channel, he was very categorical in saying that 203 lakh the production is going to get achieved which I have said that it is unlikely.

But anyway, coming on the ground, the situation is looking very bad. And probably, maybe just to, not to present that picture that the situation is so bad, they may have skipped it, but I do not think this is right on part of a trade body, that too on all-India trade body and those things must be shared with the public at large. And I have heard that there has been an right to information (RTI) application also by an applicant who has asked for all these details which the government has forwarded to ISMA, but no reply of that has come.

So yes, it is sad that the production figure of the sugar mills on all-India basis have not been released by ISMA for last three fortnights which I could only see that it is only because of the precarious situation on the production front seen prevailing in the country because if you go by the situation, Maharashtra and Karnataka has totally stopped, in Tamil Nadu, there is a huge, grave drought situation. In Uttar Pradesh only the things are moving. And on all-India basis, things are really quite bad.

Sonia: So, if you had to identify some companies for us that are seeing a higher amount of production, which ones would they be and stocks that perhaps investors can still look at?

A: Simple math. If I just go by the state quickly, Maharashtra and Karnataka will be showing a drop of about 42-45 percent in their production over last year. And if I just then choose the third state, UP, UP probably last year they have produced 68 lakh tonne and I am expecting that probably this season, the production will be 86 lakh tonne. That means a growth of about 26 percent and UP will emerge as the largest producing state of sugar in this season because that slot was always held by Maharashtra for ages.

So, obviously if you are taking a call that in a situation when the production is estimated to be less than 200 lakh tonne, you need to pick and choose the companies of the state where the production is going to be much higher than what we have seen last year. Because if the country is going to see a production drop of about 20 percent, last year production was 251 lakh tonne, this year it is not going to be, or it will be sub-200 lakh tonne. That means there is a drop of about 20 percent.

As against that, UP will be producing 26 percent more at an estimated by about maybe, as I said, 86 lakh tonne because in next 2-3 days, all UP mills also will stop crushing. So, in that background, the focus should always be on the UP based sugarmill. And now, if I need to pick and choose among the UP sugar mills, Triveni Engineering and Industries, whatever production figure I have, they have produced 71 lakh or they will be producing 71 lakh bags of sugar against 49 lakh bags of sugar what they have produced in the previous season because till day before, Triveni has produced 70.23 lakh bags of sugar. So, they will be showing a growth of about 26 percent.

Maybe Dalmia Bharat, because Dalmia has presence UP as well as in Maharashtra, but UP will be showing a growth of about 23-24 percent, Dwarikesh Sugar Industries will be showing a growth of about 25 percent, Balrampur Chini Mills because of the lower production seen in east, still their two mills are running, Kumbhi and Gularia, they maybe showing a production growth of about maybe 15-16 percent. So, if you take a total situation, my pecking order obviously will go with Triveni Engineering because as I said, they will be recording a production growth of about 46 percent over last year.

And if you go by the valuation parameters also, if you look to the market capitalisation of Rs 2,500-2,600 crore for Triveni Engineering, people will forget that Triveni Engineering is also holding 7.2 crore shares of Triveni Turbine. The market value of what is about Rs 1,000 crore. So, on the valuation parameter also Triveni looks cheapest and in the pecking order/ then second I will probably go with Dwarikesh Sugar, third could be Dalmia Bharat and fourth will be Balrampur because Balrampur is coming into F&O from this Thursday also.

In F&O you will only be having one sugar stock and people will definitely be lapping to go for sugar stocks as the situation will be get revealed on the production front. So, taking these into consideration, focus should be on UP based sugar mills only and not on any other Maharashtra, Karnataka or Tamil Nadu and amongst UP also, as I have said that I have given youpecking order of Triveni followed by Dwarikesh, third Dalmia, fourth Balrampur Chini.

Anuj: Coming back to today's trade, PSU banks are rallying. The smaller ones, Vijaya Bank, Dena Bank, Indian Bank. What do you make of this rally?

A: Coming specifically on the smaller PSU Bank, I can only say that probably catch up may be happening because if you see the larger PSU banks like State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda, Bank of India, they have risen quite a lot on the hopes of the non-performing asset (NPA) resolution. And in fact, I have been banking on this news for about a month or so when Finance Minister, in that India Business Leader Awards has stated that the resolution will be seen quite soon.

And we have seen a move having taken place in that direction by RBI a couple of days back and actually to start with, probably the power generation and steel sector, because in both the sectors, things are seen happening on a very expeditious way because there are potential acquirers also of these projects whether you talk of the steel sector or taking that into consideration, in fact I gave a buy call on Bhushan Steel and Monnet Ispat also about two weeks back and both the stocks have risen by about 20-25 percent since then. So, maybe because if you see the consortium of banks lined up in all these stressed loan accounts, they are largely the PSU banks and the only the matter of share.

If SBI has an exposure of Rs 1,000 crore, you will be having seen an exposure of Vijaya Bank of about Rs 100 crore or maybe Rs 80 crore or Rs 75 crore because none of these PSU banks are spared whether you talk of the account of Bhushan Steel or you talk of Kingfisher or you talk of Essar Steel because you have not seen the names of the private sector banks appearing in that list, maybe exception being ICICI Bank or Axis Bank. So, taking these into consideration, I am quite hopeful that the resolution of NPA will start on a case to case basis or on a sector to sector basis because we will be having an oversight committee also who will set the guidelines maybe for the sector and within those parameters the resolution of these stressed accounts will start happening.

So, that will be seen quite positive, so maybe valuation catch up, the differential valuation catch up between large and smaller PSU banks may be happening. But I am keeping a very positive view on this PSU banks as well as on the company which are specifically seen likely to get hands changed on the NPA resolution.

Anuj: Thoughts on Bharat Forge. One of your favourite names. You have been recommending it for long on the channel. At Rs 1,140, what is the call?

A: You are right and I continue to have the same bullish view on the stock. There is no point in talking of the near-term triggers for the stock saying that North America truck market sales are seen improving. Management is confident. Guidance from the management has always been, their body language has always been robust. Defence play and all that. You need to have conviction. There are few stocks like Bharat Forge, Bharat Electronics (BEL) on which we have been consistently keeping the positive view and we are maintaining the same positive view.

The only advice which can be given to the investors, those who wish to buy these kind of stocks that they should look to wait for the share price to fall. They should not buy it in the rising market because if you take a trading pattern of these stocks, you will always finding them trading in a range which corrects maybe in the next couple of weeks, the same trading range is seen available. So, maybe if you are taking an investment call, look to buy maybe on dip, but I am keeping my positive stance on Bharat Forge with the next one year view as well.

Sonia: The other space which will be in focus tomorrow is a lot of the non-banking financial companies (NBFC) because it is going to be a heavy day in terms of earnings. You have Can Fin Homes, you have LIC Housing Finance, Mahindra and Mahindra Financial Services, ICICI Prudential, IDFC Bank, all coming out with numbers and within that a lot of them NBFCs. A quick work on any of these names that you would be bullish on ahead of numbers considering that there has been so much action in this space?

A: I will be having my positive view on all the NBFCs, but again it all needs to be looked into the valuation also. Take the case of M&M Financial. I am not saying that the results are due in the near-term or maybe in this week itself. You need to take a call on all these companies, in relation to the valuation also existing for these NBFCs, but yes, I am having my positive view on NBFC, microfinance company and housing finance company. But let us not forget that the valuations of all these companies or all these sectors are also seen to be ruling at quite high. But still amongst the space, probably I will take a positive call maybe like Bajaj Finance. I am taking a broader view.

As I said, I am not restricting my view only with the results which are due in this week. So, maybe the stocks like Bajaj Finance, Ujjivan Financial Services, Bharat Financial Inclusion now having corrected or seen to be moving in this range, I will be keeping or maybe Manappuram Finance, I will be keeping the positive view on these companies on a select basis, but yes, overall positive view on the microfinance company, housing finance company and NBFCs.

Sonia: Dish TV has lost quite a bit of ground lately. What is your prognosis here?

A: I think people are talking that this Reliance Jio will be moving into direct-to-home (DTH) space and that is seen as a big threat for the Dish TV. And when the negative starts, people start talking of the acquisition of the Videocon also seen to be an expensive at this point of time. When people go negative, they start comparing this, when the Kingfisher has acquired the Deccan Air. But I will not be buying all these arguments at this stage because these kind of news flows keeps coming in. but Reliance Jio entry into DTH is seen inevitable and that could going to be a threat to the company going forward. So, maybe on the valuation parameter, I do not think you have much upside left here from the investment point of view.