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Last Updated : Sep 07, 2016 11:19 AM IST | Source: CNBC-TV18

Here are some stock ideas from SP Tulsian

In an interview to CNBC-TV18 SP Tulsian of sptulsian.com shared his reading and outlook on the market, specific stocks and sectors .

In an interview to CNBC-TV18 SP Tulsian of sptulsian.com shared his reading and outlook on the market, specific stocks and sectors.

Below is the transcript of SP Tulsian’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Sonia: I will start off by asking you about Bharat Forge because over there, the North America truck orders have improved 36 percent compared to what we have seen last month. Do you think the worst of the North America truck orders is behind us and is this a stock that you would look to buy now?

A: Maybe post Q1 numbers, on the same day, we have seen the stock moving up by about 8-10 percent. At that time also, we have discussed that the worst is seen behind the company. I have always been maintaining the positive view when we had in our show Bulls & Bears closer to around Rs 650 or so, I gave a positive view because you cannot take a call on a stock which is fundamentally strong, having very good verticals. They may have some kind of disappointment in some of the geographies, but I have been keeping my positive view on Bharat Forge.

As I said, post Q1 numbers which largely got factored in every negatives into the price and since then, it has been on the buying list of high networth individuals (HNI) or the funds. So, I continue to have my positive view. Even after Q1 numbers which were slightly dull or you can say that they were expected to be dull, on that day also, I gave a positive view on the stock that this now becomes a very good buy and I continue to have a positive view.

Latha: We had the Oil India numbers yesterday and a few minutes back, we got the Chennai Petroleum Corporation numbers. Maybe you have not had the chance to look at the Chennai Petro numbers, but any thoughts on the oil and gas space, especially these two stocks?

A: I will not be keeping positive view on the oil and gas stocks. Maybe Oil India numbers are slightly better, but if you go by the Chennai Petro number, if you see the mismatch because on one hand if you take the gross refining margin (GRM) at USD 8 for Q1, while whole of FY16 had a GRM of USD 10 and if you take a call on the entire working, there is a lot of mismatch.

Just to give a quick recap, if you take for Q1, the raw material cost is 55 percent and against 66.5 percent for whole of FY16. So, when we say that FY16 had a double digit GRM of USD 10 plus how you have the raw material cost so high at 66.5 percent? That means Q1 definitely has an inventory gain, but again, when you see the inventory held by the company of closer to about Rs 3,500 crore, you do not think that much inventory gain must have got factored in, beyond Rs 200-250 crore.

So, definitely the Q1 numbers are looking very good with earnings per share (EPS) seen at Rs 31.55 against Rs 51 for whole of FY16. In fact, we gave a buy call about a couple of months back on Chennai Petro to our members and on the channel also when it was ruling at around Rs 200, then it corrected by about maybe Rs 8-10. I have been keeping positive stance on the stock because of the benefits of the pipeline, which we will be seeing getting operational in the next year. This is the most complex refinery of about 12-13 million tonne capacity. But these numbers needs a little scrutiny or maybe the management commentary, unless and until we get to know the inventory gain, because as I said, you just cannot accept the operating profit of Rs 708 crore for quarter against Rs 1,087 crore for whole of FY16. You just cannot extrapolate the Q1 numbers that these numbers can get extrapolated for the next 2-3 quarters also.

But yes, on the face of it, optically Q1 numbers are looking very good, but in spite of that, I will keep my neutral stance, maybe on the oil marketing companies, the situation is different but on the others like ONGC, Oil India or maybe Chennai Petro, MRPL, I will be having the neutral to mild positive stance.

Anuj: The stock of the year is YES Bank. It has doubled this year and this has been your top pick in the banking space. Is it good for more, or has it now reached full value?

A: Again, on the same topic, we have discussed about a week back also and I have said that probably now, I will be looking because definitely, YES Bank which was recommended when the whole negative perception was building up, I chose two banking stocks. One was YES Bank and second was Kotak Mahindra Bank. And I continue to have the same -- but YES Bank having run up almost, it has almost doubled or more than doubled in this last 8-10 months, I do not have the price charts and all that. They were only my two preferred picks because people were very circumspect on Axis Bank, ICICI Bank or even on HDFC Bank also because of the growth tapering from 30 percent to 25 percent and then to 20 percent.

But after having seen such a big run-up now, I am keeping my positive stance on Kotak Mahindra Bank and RBL Bank, the new kid on the block and since the initial public offering, I have been giving a positive view on the day of listing also at around Rs 270-275, I gave that this is a very good stock to have. So, if I need to choose two stocks, because you need to find value, there is no point in chasing the momentum beyond a point. So, value is now seen in Kotak Mahindra Bank and RBL Bank. And maybe I will not hesitate in booking the profits in YES Bank also, as I said, which has almost doubled in about 8-10 months or so.

Sonia: I wanted to ask you about some of these auto ancillaries that have been sitting at 52-week highs, names like Amara Raja, Exide Industries, tyre stocks like JK Tyre and Industries, Apollo Tyres, anything in that space that still offers some value now?

A: You have to remove the tyre stocks from the auto ancillary space because they loosely can be called as auto ancillary, but I am extremely positive on auto ancillary stocks and few of the ideas like Rane Brake Linings, which was recommended by me at about Rs 440-450 a couple of months back has almost more than doubled to more than Rs 900-950. So, one idea which comes to my mind is Automotive Axles and they make rear and front axles, they make for the defence axles, it is a joint venture company of Kalyani Group and Meritor of US -- both are holding 36 percent each about closer to 71-72 percent stake in the company.

And if you take a call for FY17, the total income is likely to be closer to about Rs 1,300 crore with EPS seen to be at about Rs 32-33. I am expecting a growth of about 40 percent in bottomline because for FY16, they had the EPS of closer to about Rs 23-24. I am expecting Rs 32-33 from the company. It is virtually debt free.

Recently, they have introduced the drum brake assemblies also which are having good demand, 35 percent of their income of Rs 1,300 crore comes from exports. They cater largely to heavy commercial vehicle (HCV) and light commercial vehicles (LCV) they have all their clienteles, Ashok Leyland and Tata Motors. You can virtually call them as the leaders.

So, maybe the stock which is ruling closer to about Rs 700 or Rs 680-685, can easily move to Rs 1,000 maybe in this calendar year. They seem to have a lot of potential.

So, that stock is one stock which comes to my mind.

The other stock could be Subros because stock having corrected after this fire episode and all that, it has been limping back to its normalcy and share prices have moved from Rs 95 to Rs 105. I see extremely good potential from Subros in the time to come. So, these two auto ancillary stocks qualify as very good buys.

Anuj: Is this getting a bit dangerous? A lot of companies coming out and saying that we have this number or orders in arbitration, for Patel Engineering it has been a vertical rally ever since the management told us the kind of numbers that could come to their profit and loss (P&L) account because of this issue. But do you think this space is getting a bit exuberant?

A: We need to understand two or three things in consideration. If you see Patel Engineering, the recent quarterly performance has not been good, number one.

Number two, if you see the annual interest burden of closer to about Rs 450-500 crore, Rs 4,500 crore debt is not a small amount and they are holding the arbitration award of closer to Rs 2,500 crore. Even if they get Rs 1,800 crore, just knock off the interest burden of about Rs 180 crore or maybe closer to Rs 200 crore, that will reduce it to half. Still the company may not be able to post the bottomline in black. Still it will continue to have the losses, but if you take the situation -- I am not taking the FY16 number, if you take FY16 number, then you will see that the bottomline was marginally in black, so straight away Rs 180 crore will get added to the profit after tax (PAT), I do not agree there.

The only advantage which I see with the company is a very smaller equity base of maybe about Rs 8 crore or so and good promoters. Both things are definitely seen positive, but the kind of exuberance, which we are seeing, has to get translated or has to get seen reflected into the working of the company. All this process of this release of money from the government and then repaying to the bank and reduction to the interest will not be seen before Q3 numbers. Once you have the results out, then people get disappointed. They just take a positive call on a long-term view, but they want those share prices to get reflected in the short-term or maybe in the micro-term and I do not think that those kind of view is justified. If you have a very long-term view of 9-18 months then probably it is justified. But I do not think that in the near-term maybe for the next couple of months, the price will sustain beyond a point.

Anuj: If Cairn shareholders also approve this merger and this overhang is out of the way, then what next for both these stocks -- Cairn and Vedanta?

A: You have rightly put it that we need to have the approval of Cairn PLC and LIC. Cairn PLC again is a done deal because they have already indicated their view that they are for it and if you see, Cairn PLC is not even worth the liability which they are facing before the Indian government. I do not know the value or the worth of the Cairn PLC, it may not be even Rs 2,000-3,000 crore while they are contesting the tax liability of maybe about Rs 12,000-13,000 crore with the government of the tax dispute which will ultimately fall on the head of Vedanta only on the merged entity or the Vedanta Group whatever you may call it.

In fact the people, the things are so much mess have been created that people are not able to take a call on an independent basis. Definitely you are right in guarded words saying that this is very damaging for the Cairn shareholders. So, the stand of LIC will need to know that whether they give this approval to this merger or not.

Let me be very blunt, if they give the approval to this merger of Cairn with Vedanta, that will be a very big negative for the shareholders of Cairn and that will question the wisdom of LIC also that in what background they have extended this merger permission. They are free to take, they have their wisdom, they have their experts, but I am totally against and I do not have any doubts that the merger will not go through because this seems to be a foregone conclusion because I am just trying to pre-empt. Again Cairn PLC is just merely a spectator, they do not have any say, they do not have any stake in holding it.

Sonia: In pre-opening, banks are on top once again, so you have State Bank of India (SBI), Bank of Baroda (BoB), IndusInd Bank that are the top gainers now. We were discussing this yesterday how SBI has been one of your favourite banking stock. At this price of around Rs 260, what does the risk reward for SBI look like now?

A: Risk can always go with any PSU bank because you do not have that kind of comfort, but having seen the Q1 numbers because I have given my opinion or my buy call on SBI looking to the best results having posted amongst all the PSU banks because we should not go by the relative numbers of non-performing assets (NPA) or net NPA or maybe the absolute number.

See the size, 3.5-4 times bigger than Punjab National Bank (PNB) or BoB and the kind of performance, whether on asset quality, margins, return on assets (ROA) and all sort of things. So after merger of these four associate banks that is State Bank of Travancore, State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Patiala all having merged, this will grow as a very big bank, top-50 banks in the world. But I am not going by the size, I am not merely or along going on the merger of these four associate banks also. I am quite impressed with Q1 and Q1 numbers, the kind of numbers which we have seen with SBI. So, as I said, risk is always with all the equity investments, but maybe it is 20:80, risk is just 20 percent, reward is 80 percent.

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First Published on Sep 7, 2016 09:00 am
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