In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his readings and outlook on specific stocks and sectors.
Below is the verbatim transcript of the interview.
Sonia: What are your thoughts on Kaveri Seed Company? The buyback has been approved. It is a tender buyback and the management told us that there won't be any dividend given this year in lieu of this buyback. What did you make of it and what do you see as the move on the stock henceforth?
A: Now the trend seem to have changed and in fact we are seeing all the cash rich companies going for buying back because there is a dual advantage. First, they are saving the dividend distribution tax of 20 percent plus and second, all these buybacks now have been made mandatorily as a tender buyback, the open market purchase has not been allowed now by Sebi, in fact promoters are also participating in the buyback. So we see the buyback giving advantage to the promoters because they are also able to take out the money of same proportion, for instance in case of Kaveri Seed, the promoter holding is 55 percent and Rs 200 crore of buyback; Rs 110 crore will go to them, so after the buyback the share holding pattern virtually remains the same.
So this practice is seen more of the buyback seen coming in lieu of dividend where the equity also gets reduced. However, the situation for the large shareholders or maybe the principals of dividend, which otherwise they would have got, I think that purpose is getting defeated. This is not a right way that you come out with the buyback in lieu of dividend.
However, Kaveri Seed have used major chunk because 21 percent of their net worth as of March 31, 2016 is getting used, so that is seen as positive but since market has already factored in this news and the buyback is only to the extent of sub-5 percent of the total, so much effect will not be seen into share prices going forward but this is a move which we have been seeing in line with many other companies those who have been going for share buyback in lieu of dividend.
Anuj: The other stock of the day has been Sintex Industries. How much more for this stock now, now that the demerger has been approved and what is your advice on the stock?
A: For the near term I won't be taking a further upside in the stock because the plastic division or two companies which are getting hived off, one is textile and second is plastic division - that will be fetching good valuation but I won't be taking a further upside call from here on maybe market is talking that some kind of equity or fresh issue will be made into plastic division and that will be seen positive because the plastic equipment makers or plastic product makers are enjoying good PE multiple, they have all been ruling at a PE multiple of 12-18 or 12-15 times, but I will be keeping my view neutral for the time being, maybe for next couple of months or so, maybe Q4 results will be seen and then the renewed call will be taken because the demerger or whatever has to come in has already been seen into the share price.
Anuj: Your thoughts on steel stocks. We have seen remarkable weakness in JSW Steel, Tata Steel and Steel Authority of India (SAIL) today, any trades here?
A: I do not know the reason for this weakness because I am taking a positive call on all the steel stocks because Sajjan Jindal is looking to acquire Monnet Ispat and Bhushan Steel and if you see the finance minister statement saying that the issues of stressed loan will be handled by the government on top priority and there are only 25-30 accounts, if can get handled. So if you have that view then definitely both Bhushan Steel and Essar Steel are on that list because both have an exposure of about 50,000 crore, I am not talking of the group exposure of Essar but only of Essar Steel and similar is the case with Bhushan Steel. So there are prospective buyers like Vedanta or JSW Steel or ArcelorMittal. So I do not see any reason for these stocks to be seen as going weak, the existing prospective buyers of these companies because they will definitely be getting a big haircut and will be getting the assets which have all been newly created by these defaulters or stressed loan assets holders at a recent time. So I do not see any reason for the weakness being seen in share price of JSW Steel etc.
Anuj: Do you track Infibeam Incorporation?
A: I do track the stock, in fact I have been keeping negative stance since it went public because I don't know on what parameters it has been included in the Futures and Options (F&O) and if you go by the marketcap of Rs 6,500 crore, this is more as e-commerce company where things are looking quite dicey, but even if I go on face value, if I say that the earnings per share (EPS) is expected to be about Rs 10 which is very easy on a turnover -- I do not think that the company must be having a turnover of more than Rs 500 crore on an annualised basis. It is very easy to have the window dressing of the financials or the results going forward. So with a PE multiple of Rs 110-115 I think that the exchanges should have been careful in including this type of stocks merely not on the objective data of the volume and all sort of things, in fact when they went public, I had raised a lot of concerns on this and I think it doesn't deserve valuation of more than Rs 100 - that maybe my overstatement but I am not happy with the performance and valuation of the company and even the business model of the company.
Sonia: Your thoughts with regards to no cess on busses. You do track some of the stocks like Force Motors, SML Isuzu, Eicher Motors etc, in general what is your view and any stock that one can still add positions into?
A: If I rely on the news that we won't be seeing any kind of cess on the capacity of more than 10 then two stocks comes to my mind - SML Isuzu and Ashok Leyland. You are right in including Force Motors also but Force ruling at a valuation or maybe at a price of about Rs 4,600 and we have not seen any kind of bump-up coming in the performance but if you take a call on SML Isuzu, they always have their best quarter as Q4 and Q1. I am relying on those two quarters which will be having back-to-back and on a relative basis SML looks the best stock based on this news.
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