Here is why SP Tulsian is bullish on Asian Paints

In an interview with CNBC-TV18, SP Tulsian, sptulsian.com, shares his views on sugar stocks, Zee Entertainment and why he would prefer not going long on the stock and why he is bullish on Asian Paints. Below is the verbatim transcript of SP Tulsian’s interview with CNBC-TV18's Anuj Singhal and Sonia Shenoy.Anuj: First a word on Zee Entertainment and really the kind of salute that the market has given, 8 percent rally?A: Actually if you really see the trajectory of the performance of the company for whole of FY16 has been very remarkable from Q1, Q2, Q3. In fact if you factor in those Q1, Q2, Q3 then probably you may find Q4 taking a pause or taking a halt. So, I won't be too excited by taking this Q4 numbers because market has been taking these numbers on year-on-year (Y-o-Y) basis which I am unable to accept that I don't see any reason to take that because for such company it is necessary to have a sequential analysis of the performance. Advertisement revenue has been a kicker and that has been growing quite well. Similar is the case with subscription but if you see as I said on a sequential basis probably subscription has cheered you more than advertisement. And similar is the case with operating profit, similar is the case with bottom-line.But apart from that the typical characteristic of this stock is that it shows a good amount of its - you can call it as a high-beta stock. No doubt it has touched an all time high but once the profit booking starts coming in you see the stocks correcting by 8-10 percent quickly. It comes to a level of maybe Rs 410 and again it will bounce back to those levels. So, yes, these kind of movement or these kind of volatility now the stocks is seeing ruling at the upper end I won't be courageous to go for a long call. I will wait for a pause. Probably as I said I won't be surprised to see the share correcting to a level of Rs 415 in this series where investors can take a call. Traders obviously has to chase the momentum, has to go by the trend but looking to the results, looking to the performances going ahead I am impressed for the first three quarters, but as I said Q4 has been seen as a status quo or as a pause. This kind of run up which we have seen today is not justified.Anuj: The other stocks that is in focus is Hindalco after the Novelis earnings. Do you think it is a flash in the pan for Hindalco and would you recommend people to use rallies to exit here?A: That is right. In fact if you see probably Novelis and Hindalco Indian operations too are in the parallel track. Even if you take the case of Novelis the company was acquired by the Birlas exactly in 2007 when Corus was acquired and they acquired it for USD 6 billion, Tatas acquired Corus for USD 13.2 billion. And actually at that point of time because it was talk that Novelis kind of seen to be a big kicker for the Hindalco consolidated operations because they consume a huge amount of metal, maybe closer to about 2 million tonnes. So, they were projecting themselves as a vertically integrated company where the metal is produced and consumed by Novelis. But we have not seen that happening even after a lapse of nine years and the best part is that the reduction in the commodity prices or the aluminium prices should have given the huge gain to Hindalco maybe in this period of time of last couple of years when we have been seeing Aluminium ruling at USD 1600-1700 on LME which used to rule at maybe USD 2500-3000 per tonne. So, that is the scenario on Novelis.Q-o-Q you don't have the consistency or the linear improvement in the performances not seen happening in the case of Novelis, that is number one. Number two, if you see the Indian operations Aditya Aluminium having an investment of exactly over Rs 45,000 crore with total debt in the books of the company closer to about Rs 80,000 crore in Hindalco consolidated debt, I don\\'t think these kind of earnings before interest, taxes (EBIT) return of closer to about four percent where you are paying an interest of at least 9-10 percent of these highly rated companies, so I don't think these kind of respite is seen coming in favour of company from Indian operations and in fact this is a similar pain seen for Vedanta also because of Vedanta Aluminium stake they are also stuck in Orissa having made an investment of Rs 40,000 crore and same is the case with Hindalco. So, I won't be too comfortable taking a call on their Indian operation and Novelis is not such a big kicker which can take care of this debt burden of Rs 80,000 crore alone drive the company. Though it was intended when the company was taken over as I said in 2007. So, yes this should be used as an exit opportunity those who wants to avail profit booking in the stock.Sonia: Shree Cements is by no means a small company, it is a Rs 50,000 crore market cap company and a lot of these cement players are now coming back on the buyers radar. Do you like this name at almost Rs 14,000? A: If you take a call in terms of the capacity addition and the efficiency or maybe the operating profit margin maintenance, I don’t think that there are any companies except UltraTech Cement and Shree Cement. Shree Cement in fact qualifies in that category more in terms of the capacity addition. So, if y0u have your organic growth that is giving you an cost advantage because the in-house capacity addition can be created with the cost of about USD 40-60 per tonne. So, that kind of enjoyment and that is consequently seen reflected in better margins of the company of Shree Cement as well. Maybe power segment was seen a drag, maybe in some of the quarters in the past; I am just referring the working till 31 December 2015 of the company but cement I don’t think that has ever disappointed and as I have been saying that one time this privilege was enjoyed by Ambuja Cement and that has been lost now to Shree Cement. One can argue for the expensive stock; definitely it is an expensive stock and if you ask me, me as an investor there is no compulsion for me to buy so expensive stock because I am keeping a positive stance on the cement sector but not the expensive stocks because if you have already reached the highest operating efficiency level or operating leverage benefits are already enjoyed, there is room for further growth. So, look for the companies where the things are still at poor stage, maybe the margins of 5-7 percent which are seen in case of many companies having a sizeable capacity of 10 million tonne. So, yes, noone can question about the efficiency but share definitely looks expensive and as an investor if you have a positive view on the cement sector look for other ideas which are available at much cheaper rate. Anuj: Just a word on Havells India as well and the kind of reaction that the market is showing right now to the earnings? A: I have no compliant on the working of the company just now declared but two segments which are the main segments, switch gear and lighting, both have shown flat in terms of turnover and in terms of the EBIT. I am referring it sequentially and the kind of run up which we have seen much prior, in fact for the last about two months or so or maybe last couple of weeks, the stock has been continuously rising. As I said, two sectors maybe cable, they have shown some kind of efficiency there but I don’t think that should be taken so positively by the market. Two main segments have shown flat so that could be the reason for profit booking now being seen in the stock.Anuj: A word on some of these names. Also, one of your top-picks now.A: I do not understand that what was the reason of such a massive or such a nervousness on the sugar stocks after seeing two results especially of the UP based which were released one yesterday, Dhampur Sugar and one today morning Mawana Sugar. Though Mawana Sugar has given the indications of selling the Muzaffarnagar unit and all sort of things, but see the kind of growth they have shown. Four times to 10 times increasing in the operating profit on a sequential basis, number one. Number two, I think the market is not factoring into the inventory gain which will be seen massive as I have been repeatedly maintaining that FY17 will be seeing the record bottomline to be posted by these 5-6 UP based sugar mills. Now since you have asked on the two companies, Bajaj Hindustan and Renuka Sugar, they have their own problems. Bajaj Hindustan has the problem of huge debt and because of that, they have the interest burden. And secondly, because of the in Karnataka, I do not think that recovery has really played a big role. So, the best part which was were enjoyed by the UP based sugar mill is of a higher recovery. And the reasonable sugarcane prices. And we will see the again results coming in from 13th onwards because maybe today and tomorrow, not any sugar results are lined up. So, maybe in anticipation or ahead of that, the renewed interest is coming back. Again, there is no reason for the prices to fall from here on because of the inventory issues which I have been repeatedly saying it for the last one month or so. Yes, overall positive view on the sugar stocks. And not the Q4 numbers is the only trigger, need to keep an eye on the Q1 and Q2 numbers as well which will again show the record performance.Anuj: Do you think at this point in time, it is still an if, if we have decent monsoon, the kind of run that we have seen in agri stocks, it could be a teaser and could there be some more gains?A: Why only agri stocks? You will see the interest coming back practically in all the stocks. And what will be the big positive, that people will start talking on the gross domestic product (GDP) estimation for FY17 because if we are expecting an agricultural growth of 6 percent and 20-21 percent is contributed by agriculture, so 1.2 percent net addition can be added to the GDP. If for FY17 we are expecting 7.4-7.6 and 1.2, probably we will be looking for 8.7-8.8. and again, that will handle the or that will solve this Mauritius tax treaty which we have been talking about that if India has that kind of GDP growth, I do not think that why any global investor will not get attracted. So, overall positive. Why only to talk of agri stocks? We will be seeing across the board buying coming in and I am quite hopeful. In fact, that is what I had been giving my about a month back that that will be seen to be a big trigger for better performance of our market.Anuj: You have been extremely positive on Asian Paints. Your first thoughts on these basic numbers that we have at this point in time. Looks like decent growth for the sales and also for the earnings before interest, taxes, depreciation and amortisation (EBITDA)?A: I am in fact impressed with the numbers but the only thing is that sometimes I have seen that market is seen to be too harsh on the expectations front. If you really plot the expectations from the market of last 12 quarters I don\\'t think maybe on one or two occasions market has seen pleased getting met with their expectations. I am unable to understand that why market blatantly goes wrong so much on this company and it is very important that March quarter is not seen to be so good and on one hand we are talking of the drought situation, cut in the discretionary spending and all that and in the given circumstances if the margins and maintained with topline growth I don\\'t think that minor - maybe Rs 10-15 crore of profits here and there should really be a matter much for this stock but if you really see the price behaviour we are seeing the stock moving in a range. I won\\'t be initiating a call by looking to these numbers. Maybe I won\\'t be surprised to see the share correcting to a level of about Rs 870-875. I don\\'t see much corrections likely to happen post these numbers because of the profit booking.Anuj: What did you make of this second half decline in telecom names led by Bharti Airtel. Midway through the day we felt that they got good news and the stocks rallied but Bharti was in fact the biggest index loser today?A: In fact I have been keeping my negative stance on Bharti Airtel and Infratel both because at that point of time I expressed my views that share buyback in lieu of dividend is not acceptable and in case of Bharti Airtel the buyback was just closer to one percent. So, actually it was just holding on and you are right post this call drop penalty which has not been imposed or that has been rejected by the apex court should have seen positive. But this shows the kind of inherent weakness which we have been seeing in the stock whether you talk of Idea Cellular or Bharti Airtel. Even Idea Cellular has seen having run up by about 15-18 percent in this last one month. So, both wanted some kind of profit booking or long positions to get liquidated and that has happened post this event.