Here is why SP Tulsian is bullish on Ujjivan Financial

In an interview with CNBC-TV18, SP Tulsian, sptulsian.com, shares his views on the microfinance space and sugar stocks. He also explains why he is bullish on Ujjivan Financial.  Below is the transcript of SP Tulsian’s interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: The top traded stock today of course, is Ujjivan and I believe the listing clearly would have disappointed a lot of high networth individuals (HNI) considering the subscriptions, but at current levels also, you are quite bullish on the stock?A: That is right. In fact, if you first take a call on the HNI, the interest cost is Rs 55 and I do not think that that kind of money is being made by the HNI investor because now the stock is ruling at a premium of maybe about Rs 20-25 and actually we have discussed this yesterday also in case of Thyrocare, that we talk of a very fabulous listing. Take the case of Thyrocare that yes, it has given a very fabulous listing but this is all the handiwork of the grey market premium which is making the issue to see such a big oversubscription. But then the HNIs are seen losing money. Take the case of Thyrocare, the interest cost to them is that Rs 190 and they have not been able to recover that Rs 190 even yesterday also. But, going forward if you take a call from here on, that now Ujjivan is ruling at Rs 240, in fact, some people may argue that Equitas has presence in all, but this seems to be a pure microfinance company on which I will be taking a positive view and if you really see, the spread in the various states have been really very high. They do not have presence of more than 10 percent in Equitas, seen heavily concentrated in Tamil Nadu. So, that all goes in favour of the company. So, yes, keeping a positive view on the Ujjivan even going from here on.But what will happen that if you keep on seeing the new companies getting added in the microfinance space, first used to be the monopoly of SKS Micro, then you have seen the addition of Equitas, now you have seen the addition of Ujjivan and even the other finance companies like Cholamandalam, they have their presence in many of the segments if not in a big way in microfinance. So, maybe one should not expect too much on the kind of returns from these companies, but look for a moderate return of maybe 22-24 percent on an annualised basis from this company but yes, keeping positive stance on Ujjivan now on the current level as compared to Equitas holding.Anuj: A word on today’s stock of the day from the index perhaps – Dr Reddys and the kind of gains that we have seen here.A: Maybe after certain corrections, Dr Reddy and Cadila, two are the classic example, one can add the Wockhardt also, that we have seen the dull results from the company or maybe flat results from the company day before. But all these pharmaceutical giants, they seem to have value at some point of time. Maybe technical factors also plays a role, so I will not be able to attribute any specific reason for Dr Reddy, but I am keeping the positive stance on all these stocks.Sonia: We have had a slew of good earnings coming in from the midcap space. Anything fresh that you have spotted since the last time we chatted?A: A lot of them have come, but it is very difficult to give, maybe yes, Jayant Agro-Organics was seen a good stock, then two paper companies Orient Paper and JK Paper have posted good numbers. Birla Corp amongst the cement space has posted good numbers. So, there are many stocks, but post that, you have seen the stocks having run up as well. So, I will not be taking the calls now on those stocks which have already participated and have corrected thereafter. But yes, maybe some results which are awaited now from the sugar stable one has to keep an eye on those stocks.Anuj: A word on Vedanta and the way we have seen the underperformance in the stock.A: If you go by the standalone business, I do not think that there is any kind of respite you have been seeing there because copper business is seeing static or static kind of performance but aluminium is a big drag. And if you see Hindustan Zinc and Cairn India which is getting merged, in fact from the share point of view, sometimes, you are not able to connect, you see the weaknesses persisting in Hindustan Zinc and Cairn India and in spite of that, Vedanta is seen moving up. You may always give some kind of reasoning that okay, maybe the merger is seen going ahead with Cairn India and that will be seen positive with Vedanta, but I do not subscribe to these arguments, so overall, yes, the technical momentum is keeping it strong, otherwise, fundamentals are not seeing any valid reason for it to rule strong. So maybe the weakness or profit booking is seen coming in but this reading momentum in this two stocks, largely Hindalco and Vedanta may remain continue, maybe after a correction of 5-8 percent, you may again see the trading interest coming back into these stocks.Sonia: We were trying to ask you about EID Parry because we remember that you have been talking about these sugar stocks for a long time. Very good numbers coming in, income up 20 percent, profits up almost 70 percent. You have been telling us about these stocks but is there more steam left?A: If you look for the, you have to divide the numbers, divide the sugar company results in Tami Nadu and UP based. Generally Tamil Nadu sugar mills are not carrying much of the inventory. If you really see the crushing, one has to really see the quantity, firstly it was expected that all of the companies will perform, but it was the inventory which will really be mattered. If you see today, four stocks have lined up for results. One is DM Shriram which has a more tilted towards the caustic soda and all that. Second is Dhampur Sugar which is again a pure sugar play. And that will be the most interesting result to watch for. Third will be Mawana which is again a UP based sugar mill, but the inventory carry will not be seen too much.But yes, EID Parry has a presence in Karnataka, Andhra Pradesh and Tamil Nadu, so this is a very strong company and these kind of results were expected, but one has to look for the inventory, the kind of inventory which will be carried by all these companies which will be having an unrealised gain to the extent of maybe about Rs 5 per kg. And that kind of gain will be booked by these companies in the coming two quarters. So, let us not put an end to these kinds of results remaining confined only to Q4. In fact, the similar kind of performance will be seen from these companies, those who are carrying good inventory in the Q1 and Q2 numbers as well.Anuj: Any quick thoughts on SML Isuzu, if you have any thoughts on the stock?A: I think if you see this capital expenditure (Capex) this will be a very big value accretive and I do not think that this is negative. Now, you come on the company, debt free company and no equity dilution is happening. The entire amount is being raised by the external commercial borrowing (ECB) and the debt. So, I do not think that this should be seen as a negative, and the kind of performance which we have seen from the company in the month of April and May and June are always the best results, because if you typically see SML Isuzu posts about 75 percent of their bottomline in the first quarter itself. And maybe fourth quarter contributes maybe to the extent of 20-25 percent while Q2 and Q3 are always posting either bottomline in the red or very meagre profits. So, I do not think that the Capex can really be taken as a negative. Maybe people had high expectation because of the good sales numbers we have seen from the company in the March quarter and maybe post that, the profit booking may be seen in the stock. But, Capex and this debt raising should not be seen as negative.Sonia: Kaveri Seeds stock has destroyed a lot of wealth for investors. It has gone from Rs 900 to Rs 400 over the last 12 months. Once again the company has posted a loss. Would you stay away or do you see some sort of opportunity in this stock?A: Looking to the Q4 numbers, I will definitely not take a buy call because this kind of volatility or this kind of unusual behaviour, you keep seeing in this stock, because maybe a lot of interested or maybe the interested parties are playing in the stock. So, I will not be taking a call because it is risky to plunge now at least looking to the Q4 numbers.Anuj: 4 percent lower now on Tata Motors. It has been very volatile. We have seen two bad days, in between there was one good day. Do you reckon that this stock is now due for correction?A: In fact, if you recall, we have discussed this about a week back when I said that this stock has seen a run up too much and the profit booking is likely to be seen. Now, market needs this Jaguar Land Rover (JLR) number as a trigger and that is the reason we have already seen the stock having corrected by Rs 30-35. And actually, this is the typical behaviour. Maybe this time on the longer side, or maybe on the upper side, the stock has seen a run up too much having run up too much to the level of Rs 420-425. Generally the stock always has corrected, maybe from a level of Rs 385-390. But maybe this time, it has corrected and it should take a support maybe at Rs 375-380 where the renewed buying will again start coming back into the counter.Anuj: That is the number you were looking at Dhampur sugar, first thoughts?A: Excellent number I would say. And one has to really understand and see. Suppose if I am just taking the power EBIT at Rs 85 crore and I am expecting distillery EBIT at Rs 10 crore the balance will be contributed by the sugar segment. So, it is very important to take a call on the sugar segment EBIT and it is important to note what is the production because I am estimating a production of 48 lakh bags in this season with a recovery of 10.5 percent. And then, whether they are carrying an inventory of 233 lakh bags or not on March 31, if supposed these are the figures which I am looking for, suppose just to give an example, if 33 lakh bags are held by the company, the unrealised gain in that will be Rs 130 crore in next maybe profit before tax sorry, Rs 130 crore, in the next three quarters or so. So, excellent numbers I would say, but yes, as I said, one has to go by the segment results and the sugar division with the inventory held as on March 31. But no prima facie, these are the excellent numbers.Anuj: A word on Grasim which has really been a remarkable stock. Of course, you have been bullish on cement, but Grasim of course is more of a holding company and of course, gets a part of cement valuation as well. But at current levels, would you be bullish on Grasim?A: It will be wrong to treat Grasim as a consolidated company, now at this stage after they have carried out these viscose staple fibre (VSF), expansion to five lakh tonne at Vilayat in Gujarat because now if you see the standalone number, in fact, that is a right way of looking at it, they have the viscose staple fibre and they have merged the Aditya Birla Chemicals, the caustic soda unit with itself. So, the chemical segment and the VSF segments both have gone up, or will be showing excellent performance. Q4 numbers has been good for chemical segments because as I said, caustic soda, the Aditya Birla Chemical got merged with the company from April 1, 2015. So, the effect was given of the merger in this last two quarters, Q3 and Q4. But if you take a call on the viscose staple fibre and the way the cotton prices are going up, they will be having a very good realisation. And once you have a good monsoon, because VSF plant at Nagda is remaining closed because of shortage of water, which is very usual that always in the month of May and June, the plant goes closure and same thing in the Harihar polyfibre in Karnataka also you have the water problem. So, I think that going ahead increased capacity of VSF at Vilayat in Gujarat is going to be a very big kicker and the increased capacity of caustic soda because of the merger of Aditya Birla Chemical and because of the merger of this Aditya Birla Chemical, the equity has just risen by maybe Rs 1.5 crore. So, it will be seen a big EPS accretive also. So, standalone numbers are definitely impressive and the 64 percent stake held by the company in UltraTech with a positive view on cement sectors, that is also, already there is a discounting of about 40-45 percent prevailing between both the valuations of the, if you take the valuations of UltraTech alone. So, overall positive view on Grasim.