IDFC Bank's rally may be short-lived: SP Tulsian

Market expert, SP Tulsian of sptulsian.com told CNBC-TV18 that IDFC Bank's bullish run may not last very long. He said he doesn't see any justification for the stock going up. Watch the video for more.Below is the verbatim transcript of SP Tulsian interview with Sonia Shenoy and Anuj Singhal on CNBC-TV18.Anuj: Have you been able to look at the numbers and the kind of decline that we have seen in the Inox Wind stock price?A: Firstly coming on I agree that yes there have been the balance sheet issues and first if I come on that if you see the debtors, receivables have increased to Rs 2,414 crore as on 31 March 2016, which were at Rs 1,432 crore that is last year in the same time and if you take the total working capital including the inventory it is coming closer to about Rs 3,000 crore on a yearly turnover of Rs 4,400 crore. When we will interact with the management, I am just acting as a devil’s advocate, the management will always say that look our turnover has doubled, because our turnover which was at Rs 941 crore in Q3 has doubled to Rs 1,830 crore and if you have a cycle may be about 4-6 months credit given to the customers and clients and all that then the receivables of Rs 2,414 crore is justified, but that may be an explanation by the management and definitely market is worried and consequently as I said that Rs 3,000 crore is the current assets that is largely the receivable and inventory Rs 2,400 crore receivable Rs 6,600 crore as inventory then obviously to finance that the working capital or the short term borrowing company has no long term borrowing, company is a debt free on a long term borrowing, but on the working capital the short term borrowing has also doubled too may be to a level of about Rs 1,400-1,500 crore.Anuj: The other stock that I want to discuss with you, I remember you used to track it in the past I don’t know if you still do it is HOV Services which is up 17 percent right now and up 35 percent for the week. What’s going on here?A: Honestly, no idea about the latest development that’s right and in fact, this stock has been moving up for the last 1 week but honestly no idea for the reason for this upsurge.Sonia: What about IDFC that is clearly the stock of the day, it still up almost about 12 percent and huge volumes getting traded there with the on-tap bank licence guidelines coming out. How much of a positive do you see for IDFC?A: Honestly, if you really take this news flow that okay you can dismantle the holding company, I don’t think that there is any justification for the stock to go up. Firstly, we do not know 53 percent stake is held by IDFC Limited in IDFC Bank and actually that model of IDFC Bank creation was not liked by the market and actually that is the reason if you take the case of IDFC Bank in spite of it is ruling at a price to book of 2 or may be less than that it has not been accepted well by the market. So merely coming on the expectation that the IDFC holding structure can get dismantled and again I presume that even if that 53 percent shares get extinguish and if the shareholders of IDFC directly gets a shareholder of IDFC Bank then probably one can take a call, but I don’t think that this process is going to get implemented so fast. So this rally may remain a short lived, I am not saying that the process cannot get executed, but don’t take this rally as sustainable merely on the hopes of IDFC being the holding company of IDFC Bank holding 53 percent stake can get dismantled.Anuj: You have not been a fan of this stock, but it’s corrected quite significantly down 60 percent from its high, worth a relook or would you avoid it completely?A: If you don’t like a stock on multiple reasons, not may be because of one event either because of the quarterly results or may be some order cancellation then you don’t like that stock, so I fell that in that category only I don’t have the comfort, so I won’t be taking a call on the stock.Sonia: The other big mover today has been Emami. It’s still quite a bit off from its 52 week highs but the stock performance has been very strong after good set of numbers. Would you recommend buying into it now?A: Just to add here, I am not saying that numbers are not good, but I won’t be saying that the numbers justifies a rise of may be about 10 percent because we all know that the King Kesh has been acquired that is going to be showing the top line growth as well as in the earnings before interest, taxes, depreciation and amortization (EBITDA) or the operating profit margin growth also, but they have a write-off also on account of that and I am unable to understand that sometimes markets takes an extreme view. In fact, may be if I just corroborates this with the Inox Wind also I agree that the debtor cycle has really deteriorated but if you see the execution capability, if you see the doubling of the capacity by the company of 1,600 megawatt (MW) and if I just give them a benefit of doubt that the major orders have been executed in the fourth quarter may be at an average rate of Rs 5.6 crore per MW. I think those things seem feasible in fact the case in point we have seen 3-4 days back was in respect to TVS Motor and see today the stock has moved back to a level of Rs 300 and on that day, I said that Rs 285 looks a good buy so may be sometime you have overreaction seen coming in, may be again the V-Guard could be an exception, could also be in that category that it is running too much ahead of that because you have the similar player available in this space. Can you really give a PE multiple of 27-29 times on the FY17, I have my doubts, so I agree that Emami has posted the numbers, but I don’t think that this kind of run of 10 percent is warranted for the stock today.Anuj: Does it deserve this much punishment or do you think this is now may be a bit of an overreaction and personally would you suggest buying right now at Rs 237?A: If you see the press release of the company having given today and the FY16 reduction in working capital cycle, this shows the carelessness on part of the management in drafting the press releases. You just can’t be so casual because if you are referring your FY16 performances you have given many points order book, may be expansion, execution and order seen in hand and all that and one pointer you are saying reduction in working capital. There is no reduction in working capital in FY16 over FY15, so I need to give the negative argument then I may not rely on the other points also which they have stated that execution and all that, but I think that sometimes even market behaves extreme at the level. Sonia has given the example that yes because last time they have given in Q3 the reduction in the working capital cycle, you are punishing them. You have given the example of TVS Motor but what is this one, it is a folly on part of both management as well as market. What has happened on the TVS, 3 days back we have seen a level of Rs 280 today it is Rs 300, what has changed in this 48 hours nothing and believe me if this Inox Wind results would have come off market hour and if you would have asked 100 analysts, 99 would have said that yes results are good, this working capital may not hamper so much because it has been in correlation to the higher turnover having achieved in Q4. So yes there are extremes seen happening but to give a final answer to your question that if yes I am an investor I will go and buy the stock now at a 20 percent lower circuit.Anuj: Any call on GAIL right now? It’s done well from its lows?A: May be this Mahanagar Gas will give good value reflection in the investment because generally what happens when you are holding the investments in unlisted stocks, market is not able to take a call on the investments held by the promoter company and now since the initial public offering (IPO) is so fast within 6 days of the closing, you get the shares listed and that will be seen reflecting into the valuation of GAIL and apart from that the core business is also doing very well. May be the petrochemical segments if they improve slightly on that front then we will assess once the Q4 numbers are out then you can revise your outlook on GAIL to positive.