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.Below is the transcript of SP Tulsian’s interview to Anuj Singhal, Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Anuj: This whole Aditya Birla restructuring and the entire Grasim part in it -- you were telling us how the company has made a mess of this complete structure. Let us revisit that story. What do you think should be the best possible scenario for AB Nuvo shareholders and Grasim shareholders?A: Yesterday also, I have maintained that if you are taking a call on this story, you need to separate AB Nuvo and Grasim, both on a separate footing.Grasim, on a standalone basis, they are making viscose staple fibre (VSF) with a capacity of five lakh tonnes per annum which itself is a very rewarding and profitable business. The company apart from Nagda, Harihar and third plant is in Vilayat where they have started the production. So, the firming of VSF because of the hardening cotton prices are seen to be very rewarding. That is the story of Grasim standalone business.Grasim is holding 62-63 percent stake in UltraTech Cement as a holding company. Now, if you take a valuation call on the earnings made by the VSF business and give a reasonable multiple of even 13-15 and then derive the value, you are not getting the value of UltraTech shares to the extent of 50 percent also. So, my advice is that the minority shareholders, those who are holding Grasim shares are not getting the true value what is seen from the holding of the UltraTech.So, my suggestion would be that distributor shares, the way we have seen that happening in case of Adani Group that if the Grasim opts to directly distribute the shares of UltraTech to its shareholders, take the shares of UltraTech in the same proportion of these shares held by you in Grasim, that will be the best method. But probably because Grasim has 62-63 percent holding in UltraTech and promoter holding is sub-35 percent in Grasim, probably promoters, on the fear of equity dilution or the controlled dilution is not doing that. But if that happens minority shareholders can have an increase in the valuation by 30 percent in the share price of Grasim, that is one story on the Grasim Industries.On the AB Nuvo. We have all been hearing about the financial services and the you need to again combine this with Aditya Birla money also because Aditya Birla money is the broking business or maybe the financial services business vis-à-vis the other players like Motilal Oswal, IIFL, Edelweiss, see where they have grown. So, now if you are taking a restructuring move in Aditya Birla Nuvo, which is very much required for a very long time, because Aditya Birla Nuvo is into the services industry, they are into brick mortars like fertilisers, insulators plus they are into the financial services, that is the insurance and so many other things. So, you need to separate both these businesses. I am not saying that insulator should be transferred to one business, fertiliser should be transferred to another company. Brick and mortar or the old generation business can go in one company and the new generation business like financial services and all can come in one company along with the merger of Aditya Birla Money or maybe the financial services business and the insurance business can get transferred to Aditya Birla Money.So, my submission is that we require a radical or a massive kind of restructuring in Aditya Birla Money and a minor kind of distribution, which a management can only take a call of not fearing of the controlled dilution on the company and should distribute shares of UltraTech directly to the shareholders of Grasim to give the good value or give the right price to the minority shareholder because it does not make any difference to the promoter whether they hold via holding company because they will never exit from the company. So, this is the overall picture if you are talking of the entire group. And if you are talking of the company, I have given you the picture on Grasim separately and Aditya Birla Nuvo separately along with Aditya Birla Money.Anuj: Of course, we have discussed this in the past as well that apart from this, for other group entities as well, there is a bit of a mess in terms of the overall shareholding structure. From shareholder point of view, what do you think would be the best course of action for true value to emerge for a stock like Grasim or maybe even others like AB Nuvo? What should be one step that the company should do?A: Extending the point of Varinder Bansal of CNBC-TV18, what he has narrated here, if we just want to focus on the market cap alone, take the case of Grasim Industries. Market cap is sub-Rs 50,000 crore. Now, if you take the value of the holding which they are holding in UltraTech is the value of Rs 65,000 crore. Now, what is the standalone business of Grasim Industries is as I said, chlor-alkali and VSF. These businesses can give them an earnings per share (EPS) of Rs 150 for this FY17. That means, even if you attribute or you assign a price-earnings ratio (P/E) multiple of 15, it gives you a valuation of Rs 2,200 crore. Knock that off, that means about Rs 2,200 out of Rs 5,200 crore, 40 percent or 42 percent is coming from its standalone business and 60 percent is only coming from cement business. That means against the value of Rs 65,000 crore investment held by Grasim in UltraTech, the market is giving them a market cap of not more than Rs 30,000 crore.So, that means there is a discount element of 50 percent or more than 50 percent which is suffered by the retail investor. If I would have been an investor in Grasim Industries and if I would have got a share of UltraTech, it does not make any sense for me to see the consolidated results and feel very happy that my company on a consolidated basis has worked very well if it is not getting reflected into the price. So, that is one aspect that this is a big folly on part of the management to control the shareholding of promoter shareholding in UltraTech through Grasim where they have 31 percent stake and exactly 62 percent stake in UltraTech. That is one story in respect to Grasim industries since you have asked that what should be done for the Aditya Birla Group shareholder.Now, on the Aditya Birla Nuvo. What has happened? After the retail business or the branded retail business having hived off from the company in this last about three months back, which was major contributor to the profitability of the company -- I am not talking of the enterprise value or the potential acquisition cost of the financial services business and all that -- what has happened that that has taken away more than one third. But I would say 40 percent of the earnings before interest and taxes (EBIT) of Aditya Birla Nuvo through that garment or branded retail business. Now, if somebody can tell me as a fundamental analyst that what has happened in the last two months, which has made the share price of Aditya Birla Nuvo to rise to such an extent, I am unable to accept that either you have the inside information or the insiders are privy to this information and which they are just buying this stock. So, I am not convinced with this kind of valuations.Now, you come on the potential or the expected restructuring likely to happen in Aditya Birla Nuvo. Do you have any clarity because if you have that kind of clarity, that means you are privy to the inside information. As I said, Aditya Birla Money cannot remain alone on a standalone basis because that is too small a company. You just cannot grow the company with a broking business which is continuously making losses. So, you are very unclear or even if you contemplate any kind of restructuring in Aditya Birla Nuvo, that should happen in one go.Take Brick and Mortar business on one side and take the services business on other side whether it is financial services, whether it is insurance, but if you keep on doing it on a piecemeal basis that today I have hived off insurance business, tomorrow I will hive off financial services business, next day I will hive off my insulator business, next day I will hive off my fertiliser business, I do not think that things work in this way because how Aditya Birla Nuvo got created? It is a merger of all the residual company in the past of Indo Gulf Fertilisers, Birla Global Finance and all sort of things. So you need to demerge that. The old exercise of merger was wrong on part of the group itself.So, my point is that you need to take each company on independent basis. In UltraTech, honestly, I do not see any reason for the shareholders who worry. They are getting true value. The company is really growing very well with very less debt. Debt of just Rs 5,000-6,000 crore even after acquisition of JP Associates of 18 million tonnes, that debt will not balloon above Rs 15,000-16,000 crore. No complaint on that.Hindalco, yes again things are struggling very well, but thanks to the run up in the share price which we have seen again, where I am not convinced on the fundamental basis. Novelis has been struggling. Novelis was acquired by the group for USD 6 billion in 2007. Since then, it has been struggling but let us hope that things start reviving and they have to really put things in order and at the Odisha front, where Rs 40,000 crore is invested. Hindalco has a consolidated debt of USD 75,000-80,000 crore. But that is a separate business, independent entity and if I am not convinced, I will not take a call on that. But I am forced as a Grasim shareholder and as a Aditya Birla Nuvo shareholder to carry the load or weight of the entire business, which I am not interested.Anuj: You used to track Gokaldas Exports and you had price targets which were met and you recommended profit taking. But, did you go through the numbers? Is it going to present an entry opportunity again or is this is a miss for now?A: I have not gone through the numbers because this was not uploaded on the BSE site till 8 o’clock and I hardly track it on the NSE because the extraction of the results are very difficult on the NSE site. But yes, you are right. In fact we gave a screaming buy call on the stock at Rs 55-60 about 6-10 months back and when the Q4 numbers were declared, the stock moved to Rs 120-125 and since then, I have been recommending this sell and profit booking call because the developments which have happened -- in fact the ICICI invoking the shares of the promoters and having sold in the market in a huge quantity -- that was a very alarming situation that if the company genuinely would have a turnaround in Q4, why that situation is happening that ICICI is invoking the promoter share that is Blackstone and selling it in the market by reducing their promoter stake. So, that was an alarming situation and based on that information or that development alone, I was giving a profit making idea, but I have not gone through the numbers. Even if the numbers are good, one has to understand the reason for reduction in the promoter holding as well.Sonia: When influential investors buy into stocks, you generally see a lot of coattail investing from retail investors as well. But Aptech's earnings have been substantially weak for a very long time. What would you advice be to retail investors?A: If you go by the news flows for maybe last three or four years, earlier promoters have decided to exit from the company. They tried to sell, they did not get a price. If you really see in the last 2-3 quarters, I do not have exactly the data in front of me, but they have reduced their promoter stake by a couple of percentage as well and now, again we are seeing that stake getting raised.So if you go by the Q1 numbers, I do not think that you have any kind of comfort coming in because on the consolidated basis also, there is operating loss though it is very minor. It is a cash rich company, debt free company, so they are having good interest income also of close to about Rs 3-4 crore annually. But, if you see overall, maybe a P/E multiple of maybe 33-35 times, EPS of Rs 2.5-3 on consolidated basis with a mild growth on the topline but not seen much improvement in the profitability. So, all this considerations, I do not think deserves a buy call on the stock in spite of the promoters in having seen raising their stake in the company.Anuj: You track some of these south based TVS Group companies. Sundaram Fasteners, numbers look distinctly good, their EPS doubled and topline also went up. Any thoughts on this stock?A: Looking to the results, yes things are looking very good, but sometimes you wonder that in the fastener industry how come you have seen such a big jump in the profitability because on a sequential basis also, if you take a call on this one. So, definitely because fastener industry is not giving you a sudden kind of windfall where you can say that the contracts got renewed at a higher rate and all sort of things. But yes, the results are looking very good. I have been keeping a positive stance on these stocks of the TVS Group because if you see, they always enjoyed high P/E multiple on the market. So that could be the reason, but I will not be convinced to give a buy call on the share at the current price because industry is not very attractive because you have a linear kind of growth coming in the performance of the company. But yes, these results have been excellent.Anuj: The stock of the moment is Adani Ports. You like this stock. This stock has tested patience of investors, not done much since its index inclusion. At Rs 250, is it still a buy?A: Apart from the results, which has been very good -- because first let me touch on the cargo handling. They have handled 42 million metric tonnes against maybe 37 quarter on quarter (QoQ) and sub-40 on yearonyear (YoY and if you go by the container terminal four which will get operational at Mundra port, then the ramping up of the container terminals at Hazira as well at Ennore port all will add to the fundamentals on a very robust basis going forward.But what I like, straightening or reversing or whatever you may call it of the loans and advances to the group company, probably that has been a big overhand on the share price of the stock, because I have been taking a positive call and since post its inclusion in the Nifty and Sensex both, about six months back, stock since then have not been performing at all.In fact, you can say that the moment it got included in both the indices, it has been correcting since then. It was ruling closer to about Rs 310-315 then. But I think that the trend reversal has started from here on and if the company is able to reverse that and make an announcement of these loans and advances to the inter-group companies and all that, that can really be a very big booster because as I explained that results are no complaint at all on the core business, as I said Cargo handling having risen by about maybe 11-12 percent on QoQ basis and all sort of things. So, I am very much convinced that this is going to be a big turnaround from here on for the company, largely because of that loans and advances factor.