Here's why Tulsian is upbeat on cement, sugar and Bharat Forge

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shares his rationale behind being upbeat on cement sector and why he thinks the news of ACC-Ambuja was on expected lines and will be a logical move.
According to him, the merged will become the second largest cement player after UltraTech Cement, which will be a positive for the company.

Tulsian is also positive on Bharat Forge for the medium-term but advises investors to wait for a correction of Rs 30-40 from current levels to enter the stock.

From the Sugar companies, he is bullish on basically Uttar Pradesh sugar mills like Oudh Sugar Mills, Dalmia Bharat Sugar and Dwarikesh Sugar. Below is the transcript of SP Tulsian’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18. Anuj: One of your favourite stocks from cement are, Panyam Cements and Mineral Industries, has done well today. I wanted your thoughts on that and also, on the story that Nigel broke about possible ACC-Ambuja Cements merger. How would you look at that? A: First coming on Panyam Cements, excellent numbers the company has posted. I have been keeping this on my radar. But what I have concluded from the results of Panyam Cement that the companies those who have the presence in southern states like Andhra Pradesh, Telangana, Karnatka, Tamil Nadu, all are posting very good numbers. In fact, we have seen that happening or reflecting into the India Cements numbers also which you have seen quite good. So, keeping a positive stance, you are going to see many of these cement stocks from that region reporting the numbers. So, my eyes will be on Keerthi Industries, NCL Industries and Kesoram Industries because all three are operating in the Andhra Pradesh and Telangana space. Now coming on the ACC-Ambuja merger, this has been very much on cards. We have seen formalities of the shares having acquired by Ambuja Cement of ACC making it as its subsidiary with 50 percent stake. And thereafter, the parent having increased their stake also by 4.5 percent in the company. So, this consolidation is very much on the expected lines. Two or three things which needs to be watched, that 50 percent holding because it is a foregone conclusion that ACC is going to get merged into Ambuja Cement, so Ambuja Cement will exist thereafter post-merger, this is a presumption. I am not saying that nothing can happen. So, if on that presumption, if you see there is no reason for the 50 percent stake held by Ambuja Cements in ACC, that is obviously going to get extinguished. And if you see that happening, there will be very less equity addition happening to the company on the expanded scale. Now, Ambuja has the issued equity of about 200 crore shares and if I take a swap ratio of 6.5:1 based on the market price because generally, you have seen the swap happening at those ratios, then you will see the addition of 60 crore equity getting added to the Ambuja share capital. Now what is the capacity? ACC 34-35 million tonne, Ambuja 30-31 million tonne. And if you are getting your equity increased just by 60 crore shares, that is Rs 120 crore in the absolute terms with capacity coming in of 35 million tonne to the company, that will be seen quite positive because ACC and Ambuja, both are having the debt free status. So here on, if you have a capacity of 65-66 million tonne, they will be the second largest player after UltraTech Cement and with a debt-free status, that will be seen very positive. Now going ahead, if you see this situation, Ambuja will be having the huge potential to improve the productivity as well as the margin and profitability post this merger of ACC because ACC has been seen a laggard. And in the past concalls and all that, they have mentioned that USD 150 million profitability can all be expected, that turns out to be about Rs 1,000 crore. So, yes, this will be a very synergistic move and maybe because 64 percent stake is held by the foreign promoter in Ambuja Cement with extinguishment of 50 percent stake also will not disturb their shareholding pattern to a great extent. So, this seems to be the broad contour, but these are without looking to the fine prints, once they go ahead and declare the swap ratio and all sort of things at that point of time has to be taken into consideration. But on the face of it, this looks to be a logical move.

Sonia: One stock that you have been bullish for a while in the auto ancillary space is Bharat Forge and today, once again it has done well on the back of good numbers coming in from North America trucks. At this price, how are you positioned in that name? A: I have said that when the last month we have seen the dull numbers, at that time I have said that this is the time you should enter into such stocks, because when you see the good numbers coming in of the North American truck sales, the stock starts moving up. If you want to trade from a near-term point of view, maybe with a view of about 15-30 days then probably these data are relevant. But once the stock having moved up with the good sales numbers having seen from North America, one should wait. Maybe when the stock corrects by about Rs 30-40, that should be an entry point and I am holding quite extremely positive view on the stock from medium-term point of view. Anuj: Dwarikesh Sugar Industries has been a 10-bagger since your recommendation, but what next? Is the sugar cycle still there for someone to play the stock? A: If you rely on the production estimates, I do not think that the production is going to be, Indian Sugar Mills Association has estimated at 213 lakh tonne. I do not think that the production is going to exceed more than 200 lakhs. And if you see the closing stock which the industry people have been talking guardedly, they are taking that as 77 lakh tonne or maybe 7.7 million which I doubt that it is more than 7 million. So add 220 million and 7 million. You will be having consumption of 25 million. Probably that may not be able to meet the requirement of October months because the season is ending on September, we are estimating all these figures by then. I am in fact sometimes scared, maybe that I will not be surprised to see the sugar getting sold in the month of October around Diwali because this time, Diwali is in the middle of October, I will not be surprised to see the sugar getting sold into the retail at closer to Rs 48-50 and that will definitely be very scary. So, maybe that will be seen giving a gain of about 30-40 percent from current level. And as you have said, Dwarikesh having risen by 10 times post my recommendation, if you see a rise of 30-40 percent also, it will grow by 13-14 times, so I am extremely bullish. If you see the Oudh Sugar Mills numbers which have come out an hour back, probably that was the best results I have seen amongst all the sugar stocks having reported the numbers till now followed by Dalmia Bharat Sugar and Industries and Dwarikesh. In fact, if you want me to say that which are the three best numbers, these are my pecking order. Oudh, Dalmia and Dwarikesh. So, I am keeping my positive stance on the Uttar Pradesh sugar mill only. There is no point in playing on the other state sugar mills though in Tamil Nadu, just as a matter of record, let me say that the sugar prices have moved beyond UP prices. If you recall Maharashtra and Tamil Nadu always used to rule Rs 2 lower than what it used to rule in the UP. But now UP is ruling at Rs 37 per kg while in Tamil Nadu, it is ruling at Rs 39+ per kg. So that indicates the scare situation prevailing in the central and southern part of the country.