Here's why Tulsian is bullish on UP sugar cos, Advanced Enzyme

SP Tulsian of sptulsian.com in an interview to CNBC-TV18 explains why is upbeat on UP sugar stocks, especially the ones with good inventories like Dalmia Bharat, Balrampur Chini, Dwarikesh,Triveni Engineering and Industries, and Oudh Sugar Mill. He is also very positive on the new listing Advanced Enzyme Technologies from a 6-8 months perspectives.

He also explains why he is not positive on IDFC from a fundamental perspective and why he prefers Jet Airways, SpiceJet over Interglobe Aviation. Below is the transcript of SP Tulsian’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18. Anuj: IDFC is up 8.5 percent right now. What is your call here? Do you think it has run its course in terms of bridging the holding company discount? A: Maybe because of the merger news - things has been happening and definitely, because of the holding company discount existing, we see these kind of moves coming in. Actually about 10 days back also we have the similar kind of things coming in. But if you really take a call, even if I take a call on the IDFC Bank saying that book value is Rs 41, you have a good scope of this discounting, getting narrowed down in case of mergers, I will not be too positive on the stock, because this is a long process. Unless and until you are very sure that the merger announcement is going to happen, then only you can take a call, but otherwise, from a trading or from a fundamental perspective, I will not be taking a positive view on the stock. Anuj: A word on Dwarikesh Sugar Industries. Since you are extremely bullish on UP based sugar stocks and I remember Dwarikesh is one of your top picks along with Balrampur Chini and Dalmia Bharat Sugar. What are the numbers that you are expecting? Record profit again and what should one do with the stock now? A: Tomorrow, Dwarikesh will be the first company to report the numbers from UP belt and you are right that I have been taking positive call on these 3-4 stocks in the same order. Maybe Dalmia Bharat, Balrampur Chini, Dwarikesh and Triveni Engineering and Industries and fifth could be Oudh Sugar Mill. And it is very essential to take a call on the stocks held by all these companies and how much of them has got sold. Because if you really take a call, about 70 percent of the total production of season 2015-2016 is held by all these companies as inventory. And in fact if you see the Bajaj Hindustan, they have sold maximum in the first quarter. So, it is very essential unless and until you know the quantity that has been sold by each company, it is very difficult to take a call on their expected profitability. But I can say that the signs will change because for instance, Balrampur Chini, which has posted a negative profit after tax (PAT) of Rs 70 crore in the similar quarter last year will be showing a plus Rs 70 crore as profit before tax (PBT) in this quarter. Similar will be the case with Dwarikesh Sugar. Similar will be the case with Dalmia Sugar, because all of them have been holding huge inventory and the kind of realisations which we have seen in this quarter is going to be at an average of Rs 34 per kg plus while all the inventories are held at Rs 26-27 or maybe not above Rs 28. So, I am expecting better numbers from these 3-4 companies and it is very essential that we should be very careful in taking a general call on all the sugar stocks like the maybe the sugar mills which are located in Andhra or Tamil Nadu because those companies are not carrying that kind of inventory which we have been seen carried by the UP based sugar mills. So let us watch for the results tomorrow for Dwarikesh sugar which will be the first company to declare numbers from UP belt. Sonia: I also wanted to ask you about Advanced Enzyme Technologies. That has given 50 percent returns in two days and you have been very bullish on that ever since the initial public offering (IPO) issued. At this price, would you still think that there is a lot more upside left or is it too expensive now? A: You are right that in fact, if you really ask me the kind of bullishness I have taken on the stock on few IPOs one was Ujjivan Financial Services and second was Advanced Enzyme. I am not saying that I was not bullish on the other IPOs, but the kind of force or the pace at which I had kept my bullishness and yesterday also, I have said that only because of the high net worth category (HNI) trades are getting squared off, you are seeing the share ruling subdued. And if you recall, yesterday, I said that in this last one hour, the things are getting squared off, those who have the medium-term view can definitely look to enter. But today, again the stock has shown an upward move of 15 percent. But the kind of growth, in fact that is very important. We have discussed on the business models, 60 types of enzymes held by them and actually the best part is that they are catering to the healthcare and nutraceuticals; 80 percent of their business comes from these two segments. Moreover, the highest margins come from nutraceutical where they cater to the extent of 51-52 percent, and about 29 percent is catered to the pharmaceutical segment, which is the second highest margin. So because of these I am expecting very good numbers or maybe the compounded annual growth rate (CAGR) on the bottomline coming in from the company for the next 3 years at more than 30 percent. I will not be surprised to see FY17 EPS closer to about Rs 48-49.

So, I think that this buying momentum is likely to continue. I will not be surprised to see the share moving closer to about Rs 2,000 in the next six months or so. So, my positive bias continues on the stock and my advice is that either you allow stock to correct by maybe 4-5 percent, enter at that point of time, but at least the investors, those who have got the allotment, if they can hold for 6-8 months, I will not be surprised to see a level of Rs 2,000. Anuj: We were discussing Interglobe Aviation. I know this is not one of your favourite stocks, never was. But at current levels, does it warrant an entry? A: Sometimes, in fact if you go in retrospect and if you try to analyse honestly, believe me, I have been trying to scratch my head that what made the share to move to Rs 1,300 at that point of time. But if you really keep seeing the results of the company, first there were many corporate governance issues and this time, if you really see the performance, it has r been very bad. And see now, the market is taking a call that the induction of the aircraft at a later date can be seen positive. I have heard some of the experts saying that which was earlier seen as a bullish trigger. So, actually the type of hype which got created in fact has made the share price victim of all those things. If you did not have seen the kind of hype which was seen built up on the stock and irrational exuberance having made the stock to move to Rs 1,300. So, taking all this into consideration, now come and compare it with Jet Airways. I am not saying that Jet is going to perform better but see the situation prevailing in Jet Airways. You have about 75 percent holding held by the Etihad and Naresh Goyal combined together. Now take the situation of the 49 percent allowed by the airline by the foreign airline with 100 percent foreign direct investment (FDI) capped 100 percent FDI allowed in the aviation sector with a cap of 49 percent to any foreign airlines. I am taking the extreme scenario that the stock can even be seen as a delisting candidate also where Etihad will say that okay I am prepared to buy the entire float of about 24 percent, I will raise my stake to 49 percent, 51 percent remaining with Naresh Goyal. So, what will be the situation in that case, number one. Number two, honestly, I do not see performance of SpiceJet and Jet Airways in any way inferior to the IndiGo because take the worst part about the IndiGo is that I have been seeing the interest cost increasing in this quarter while the dividend was taken by the company by making the net worth of the company negative. But no point in talking the old issues. So, taking all this is into consideration, I am still not convinced, but yes ultimately, everything has a price tag. The stock, the kind of correction which we have seen one can always look to buy the stock, but still if you really ask me, my preference still will go with Jet Airways, SpiceJet and then IndiGo.

Anuj: How have you looked at the situation in Bharat Financial Inclusion and the fact that the stock is now down 10 percent? A: Maybe stock wanted some trigger to correct because if you really see the exuberance, I have been giving that caution one may always argue that the arrest of Dilli Raj is seen to be a serious matter, but I don’t think that that has anything to do with the affairs of the Bharat Financial Inclusion and that was in respect to the old issues and all that, but it wanted a correction and actually that maybe the case with all the NBFCs. The kind of irrational exuberance which we have seen in case of many of these NBFCs maybe except these Manappuram and Muthoot, which can still be called as reasonable price, I am not saying that the things are looking quite good or seen to be having good value, so this kind of correction was expected in Bharat Financial Inclusion and the kind of overbought position which we have seen in the stock because traders have taken it for granted that these stocks will keep on moving like this. In fact there have been two stocks, one is Bajaj Finance and second was this Bharat Financial Inclusion so caution now continues to move on the Bajaj Finance also, because if you really see in the past also many of these bonus candidates have been seeing the tax planning and all sort of things as well and post bonus all the stocks generally have corrected, so that also could be one of the trigger, but yes as of now if I just focus on Bharat Financial Inclusion I am keeping my cautious stance still continuing on the stock at the current level as well. Anuj: First reactions on Coromandel International? A: See, if you really take a fundamental and the rationale view I think the government move is 100 percent right, because if you really take the P&K prices that is phosphorous and potash, both the prices have reduced in the international market and if you really see Urea is the only administered price were it is getting sold at a lower price. In fact, just to give an example in the past also these types of things are done by the complex fertiliser makers, where the things were illegally in fact what they used to do, they use to compel the farmers to buy any odd say a child’s toy of Rs 5 and they use to say that you have to buy this one toy with one bag of complex fertiliser. It looks really absurd for Rs 100, so this kind of gimmicks is not going to get accepted and if we see this kind of move having taken by the government, I think it is a very praiseworthy. One should not worry that okay I am invested in the Coromandel International, my share price will collapse and all sort of things. There has to be some transparency some ethics on part of the complex fertiliser maker also, because this is the season and they know that it is going to be the bumper kharif as well as the bumper rabi season going ahead, so they just can’t take the undue advantage of the falling P&K price that must legitimately passed off. It does not mean that only the government companies have reduced it or they are selling it at a loss. So rightly so government is just taking the hard measures and forcing these all complex fertilisers to come on line and act rationally. Anuj: A word on Delta Corp and your thought on the stock at Rs 99. A: Results are definitely good, but if you really see this stock, I don’t think that this stock has really shown any kind of uptick, whenever in the past also when we have seen the stock going up it has swiftly corrected back, so it is moving in a range of probably the short term range of last 3 or 4 months it has broken and move to 3 digits, but I won’t be taking a positive call on the stock at the current price in spite of seeing the good Q1 numbers from the company. Sonia: Have you taken a look at Indian Bank and the kind of up move that we have seen on that stock, I mean 20 percent higher I agree that there are some bright spots in the earnings this time, but does that really warrant a 20 percent up move. A: Let me first give you the bright spots and I agree that it warrants 20 percent because let me just give you quickly operating profit Rs 903 crore against Rs 827 crore Q4. If you recall this same time I have raised in case of ICICI Bank. See, we have all been raising or taking a call on slippages, gross NPA, net NPA I think all those data are now stale you need to look to the other things as well so the moment you see your net interest margin expanding everything gets boiled down to the operating profit and the operating profit for the bank has risen to Rs 903 crore from Rs 827 crore on a sequential basis, what has been the return on assets 0.6 percent against 0.43 percent and if you really see the provisions only Rs 417 crore and if you really see this PSU Banks generally they have provisions of as 60-75 percent of the operating profit, while in case of this bank it is not even 45 percent as I have said Rs 903 crore operating profits so I would really say that probably this is the best numbers I have seen amongst the PSU bank and in fact if you compare with the same parameters on ICICI Bank which I raise couple of days back where I have said that the results are bad on the operating profit parameters also, so I am quite happy and satisfied with the Indian Bank number and if the other PSU banks also follow on the same line, I think one can again have a confidence and positive view returning back on those stocks.