Here is why Tulsian bets fertiliser stocks

In an interview with CNBC-TV18, SP Tulsian of sptulsian.com, said he is positive on the fertiliser space, and bets on stocks like Gujarat State Fertilizers & Chemicals (GSFC), Tata Chemicals, Coromandel.

Below is the verbatim transcript of SP Tulsian's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18. Sonia: Reema was just telling us about how the jute companies are doing well because the government has imposed an anti-dumping duty on jute products coming in from other countries like Bangladesh, etc. You track some of these stocks like Ludlow Jute & Specialities very closely. What kind of positive impact do you see for them and is it just a trading bet now or do you see some investment call here as well? A: Two things. Firstly, there are only three stocks available in the jute space in the listed space. One is Cheviot Company, Ludlow and Gloster. And if you see the Cheviot, if I just take a call, they are more into making the fine jute textiles which are used for the bags and accessories and all sort of things and having a very good export exposure. So, I do not think that that company is going to get affected, number one. Number two, we all have seen that about 15 percent of the demand has met by this dumping and all sort of things which will get reduced. But, if you see that probably I am taking that call on the industrial use now that gunny bags are getting replaced with the polymer bags in many of the areas.  So, that area may see some kind of demand coming in, but I do not think that any of the listed companies will gain substantially because as such, if you see the better realisations from the export and the product innovations having made by these companies into making jute thread, jute textiles, jute accessories which as such, have been giving them the higher revenues. I do not think that because of this anti-dumping duty having been imposed for next five years will be seeing any accretion in the revenue or in the margin in these listed companies. But, yes, this will be more sentimental and as such, a mild positive bias can get built on these three stocks.

Anuj: What are your thoughts on Oil and Natural Gas Corporation (ONGC) which has been a remarkable outperformer. It is now maybe pricing in goldilocks scenario with no subsidy and high realisations, but do you see more room for this stock from here?  A: I have never taken positive view on ONGC and Oil India both for the simple reason that I am not worried for the subsidy sharing because we all know that that is matter of past and it is not going to get resurfaced again. The only now problem before the government is that of the kerosene subsidy which is again met by the exchequer. So, there is no burden coming to be seen on ONGC.  However, what happens -- take the situation if crude moves beyond USD 60, then probably I don’t think that the policy won’t get quickly changed where some kind of subsidy again is levied on ONGC and all that. So, the company will be allowed to play only with the range of USD 45-55 and I don’t think that that is sufficient because if you have the views on the other natural resources coming so positive, why to have such kind of stocks in the portfolio which faces these kind of volatility and uncertainty.  As such if you see, crude price behaviour, is not linear. You see the prices going up of the crude and then again they get corrected by couple of dollars. You need to take a daily view on these kind of stocks. For the traders, this may be okay if you take a daily call but I don’t think that this is a comforting stock for the investors.

Sonia: The other stock which I wanted to ask you about which you have been very bullish on at least in the past was EID Parry. That stock has actually hit a new 52-week high today and the last one month has been very good for the stock. At this price of Rs 280, is it still worth a buy or do you think that one has lost the chance to get into this one? A: EID Parry has dual advantage. First, one is of sugar and second is of fertiliser because EID Parry is the holding company of Coromandel International. And I have been keeping a very positive view on the sugar as well as on complex fertiliser. I am not keeping the positive view on urea makers amongst the fertiliser space. But if I take a scenario going forward, Tamil Nadu is going to see reduction in the sugar production to the extent of about 15 percent over last year. Maharashtra and Karnataka will be seeing a lower production of about 30-35 percent lower. So, maybe people are taking a sentimental call that all the sugar stocks are going to go up. The only state which will show a higher sugar production or maybe the same production what has been witnessed last year is Uttar Pradesh. UP had produced about 69 lakh tonne last year and this year, it is going to exceed 70 lakh tonne while situation with Tamil Nadu is a different thing. Tamil Nadu had 13 lakh tonne and this year it is going to be about 10-11 lakh tonne.  So, EID Parry will in fact suffer because of this lower output of the sugar, but maybe because of the sentimental reason because when the investors are running to buy sugar stocks, they do not see the presence, whether the company having presence in Karnataka or in Tamil Nadu. They just go and lap the stocks with the name sugar running on it. But yes, as I said, I am quite positive on the fertiliser space, the complex one because amongst that they are Gujarat State Fertilizers & Chemicals (GSFC), Tata Chemicals, Coromandel. And EID being the parent company of Coromandel, I am keeping a positive stance on that. So, taking these both sectors into consideration, I will keep a positive bias, but purely from the sugar point of view, I will not be choosing EID parry in that space.