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Here's a fundamental view on market from SP Tulsian

Watch the interview of SP Tulsian of sptulsian.com with Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18, in which he shared his readings and outlook on fundamentals of market and specific stocks.
Dec 20, 2017 / 09:04 AM IST

Watch the interview of SP Tulsian of sptulsian.com with Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18, in which he shared his readings and outlook on fundamentals of market and specific stocks.

Below is the verbatim transcript of the interview.

Latha: Edelweiss buying up the Religare Securities business, they have not told us the price, but they say that they are going to get a million clients, about 1,290 branches – I think 90 branches and 1,290 outposts. Would you relook at Edelweiss stock because of this acquisition?

A: Probably I will not look for the Edelweiss stock for the reason that firstly the consideration is not known, number one. Number two, if you see the press release which says that they are acquiring the Religare Securities business and honestly if you enlarge the Religare Securities business, they have said that equity broking, commodity broking and depository participants services and I don’t understand whether there is any attraction in the commodity and equity broking business as well as the depository participants services because all those three are already existing.

However, if you come on the 1,250 points, it is 90 branches and 1,250 points and now mind it that they have not spelt out on the employees how much they will be taking over because Religare has an employee strength of about 8,400 and they have 1,250 points. So all the 1,250 points will be catering to the business which is going to get acquired by Edelweiss of Religare for the Edelweiss as well. However, you do not know, you have no clarity in respect to the employees that how many of that 8,400, how much will get absorbed by Edelweiss. So you have so many missing links seen without which it is not possible and because if you really see the core business, even if you have one million customers, majority of them must be having dormant having shifted to other broking’s and all that which may not be attractive for those one million customers to revive and come back under the Edelweiss fold.

So, there are so many missing links, I won’t be taking a call unless and until you have clarity largely on two things, one is on the employee that are going to get absorbed and second is the consideration. Third, maybe the scope of the areas which they are acquiring. If it is only equity business, equity broking, commodity broking and depository participant related services, I would not be interested. However, 1,250 points distribution services needs to get defined. So there are so many missing links which will be – once you have the clarity then only one can take a call on the Edelweiss.

Anuj: For Religare stockholders, is this an opportunity to make an exit, it has run up a bit over the last one month?

A: It should be used as an exit, but sometimes when you have the stock hitting upper circuit, and because the kind of bits and pieces, if you are divesting the stake and business of the company in pieces, that means there may not have been a single buyer for the entire company because there may not been seen having much attraction in acquiring the company as a whole by the potential acquirer. So if they are selling in bits and pieces, probably they will be left with the bad and the maybe sticky lots with them which may not be too attractive for the existing shareholders or Religare.

So definitely one should use that opportunity, only the price at which one should exit, whether one should exit probably market may get enthused that yes the process of some kind of monetisation have started by Religare and you may see the share hitting upper circuit again. So, wait for that but exit call has to be taken from Religare stock on this news event.

Anuj: Let us discuss your stock idea, Rajratan Global Wire. If my memory serves me right, I think you had recommended this in November when it was Rs 580, and now it is Rs 705. What is the thesis here?

A: That is right. Buy call was given on November 10 at Rs 579. The stock has already given a return of about 21 percent in six weeks. The idea is that the stock yesterday had hit almost closer to 52 week high, number one. Number two, this is the auto ancillary stock making the bead wire for tyres, and thirdly the kind of run up which we have been seeing in the auto makers, and auto ancillaries, both on the volume growth, probably this company is seen to be in a very sweet spot because the company is in almost a monopolistic or maybe duopolistic kind of situation where people don’t migrate so quickly, the tyre makers because it is a very critical part of a small value but which holds the tyre to the tyre rim, the bead wire, small steel wire that holds the tye to the tyre rim. So that is a very critical part.

The company is having two plants, one in India and one is in South East Asia and they are catering to all the tyre makers. They have the clientele like MRF, Ceat, Apollo Tyres, Balkrishna, Bridgestone, Continental, and Sumitomo. The two plants which they have is one in India is having a capacity of 36,000 tonne per annum and in Thailand they have a capacity of 26,400 tonne. In fact if you take, I just take quickly the one year performance broken in each quarter, the financial performance of the company has seen on an improvement from March quarter onwards because maybe prior to that in FY17, first half was very bad, even third quarter was not so good.

However, the financial performance has started an improvement from fourth quarter of FY17 and that is continuing in first half also of FY18. That means if you see the Q1, had an income of about Rs 76 crore while Q2 had an income of Rs 92 crore with a PAT rising from Rs 3.58 crore to Rs 5.75 crore. So that means the turnover has shown an increase of 20 percent but bottomline has risen by about 40-45 percent on a sequential basis with EPS of Rs 13 in Q2 against Rs 8 in Q1 of FY18. So that means you have already seen an EPS of closer to Rs 22-23 and even if you extrapolate the same trend you are bound to get an EPS of about Rs 45. In fact we are estimating it to be Rs 48-49 for FY18. So Rs 45 EPS and you are getting an auto ancillary at a P/E multiple of maybe 13-14.

If you come on the financials, very low equity at just Rs 4.35 crore with a face value of Rs 10, promoter stake is quite high at 63 percent, net worth is very low, but even the market cap is very low at just Rs 307 crore. It is a debt free company on net of working capital. So as I said, P/E of just 15-15.5 with estimated EPS of about anywhere between Rs 45 and Rs 48 still makes it a good buy at Rs 705 with a target of Rs 850 to be seen in next six months or so.

For full interview, watch video...
first published: Dec 20, 2017 09:04 am