PTC India a big beneficiary of rising power demand: SP Tulsian

A: First I take Can Fin Homes. I do not think that there is any kind of disappointment. In fact, again the things or the fear which we have all been worried that there will be demonetisation effect and I have been giving a positive view on all the housing finance companies and again in succession, yesterday we have seen better numbers from LIC Housing and Dewan Housing and today, the same thing has been seen from Can Fin Homes.If you see sequentially and maybe year-on-year (Y-o-Y), the growth has been really good and it is very much on expected lines. But probably market, maybe yesterday having seen both the stocks having run so much probably a shift is happening from the housing finance companies. So, I am not disappointed with Can Fin numbers, on the expected lines.

Coming on Havells, it has given a big disappointment because purely if you see the operating profit margin, it fell from 11.54 percent to 10.04 percent on a quarter-on-quarter (Q-o-Q) basis. That is a big disappointment and that has come largely because of the increase in raw material. If you see, the raw material cost has increased to 56.35 percent against 54.23 percent. So, about 212 basis points increase has happened mainly because of that. So, that is a big disappointment and I do not think that is going to be, after seeing the stock having run so much from about Rs 315-320 to Rs 370.I do not think that market will really be taking and definitely the profit booking will come in because if you go by the sector wise, switchgear has shown a disappointment because the earnings before interest and taxes (EBIT) of the switchgear division fell to about Rs 129 crore from Rs 145 crore. So, whatever the drop which we have been seeing of about Rs 16-17 crore has largely taken hit by the switchgear and there has been an exceptional income of Rs 19 crore.

So, obviously, because of that, the profit after tax (PAT) is looking somewhat maintained what we have seen on a sequential basis. But otherwise, even the PAT would have been lower by about Rs 15 crore. So, that is not going to be seen quite well by the market and I am expecting disappointment and maybe the profit booking can make the stock to correct to a level of about Rs 360 or so.

Sonia: Any of the midcap IT names that caught your attention? This time we have had decent numbers from the likes of Geometric, Mastek, etc. Anything that you like from that space?

A: No, I have not liked both of those, though Mastek has shown better numbers, they have posted better numbers and there is no point in taking a call on Geometric because the company is now getting merged with HCL Tech. So, I will not be taking any independent view on the stock, but Mastek numbers have all been good which have been out about half an hour back. But I have never found the consistency in case of Mastek performance. So, I will remain away from that stock as well.

Anuj: Your thoughts on UPL, that stock has seen a big surge today. In fact, almost approaching life high market cap of almost Rs 30,000 crore now on this one.

A: UPL, we have been giving a buy call for the last maybe one month or so. Largely, we have discussed also because of the high sowing Rabi season. But now this is a global play and if you see, they have a strong presence in agro chemical and seed after the merger of Advanta. But if you see the typical behaviour or the trading pattern of the stock that it swiftly moves to a level of Rs 735-740 and then swiftly corrects to a level of Rs 680-675 as well.Yes, the Brazil news is seen to be positive which in fact that news came yesterday and that has seen its effect into the share price today. But, maybe in the near-term, in fact the cycle which I have given you or a range which I have given you of Rs 675-680 to Rs 735, you get to see twice in a series.Now this is generally seen happening. So, I will be keeping my cautious view. I will not be, in fact the buying advice which we have given to our members in the last couple of weeks, we have been advising them to go for profit booking, for the near-term it has reached to its level and maybe in the near-term, in the next couple of days may start seeing profit booking again and can make it fall to below Rs 700 or so.

Anuj: The stock of the moment now is NTPC and the rest of the power pack. The way some of these stocks are again surging and it has been a big space of course over the last few weeks. Rs 175 now on NTPC. It has been a big move on this stock.

A: We have been keeping a positive view on all the power generation space. But let me say here, probably majority may not agree with me. I am not keeping a positive view on NTPC, but still if you see, they have the many baggages of the government policies and all sort of things. And actually, one thing which comes to my mind, the power generations, the way we have been seeing huge capital expenditure (Capex) being made in the transmission and distribution space, we will be seeing the huge offtake of power happening by the distribution companies (Discom) and all that with a lower interest rate, with improving health.

One stock which is going unnoticed is PTC India. That is a power trading company and if you see the shareholding pattern, 16 percent is the promoter holding which has been held by the four companies, four public sector undertakings (PSU), while 61 percent is held by foreign institutional investors (FII) into the company with 10 percent held by high net worth individuals (HNI). The market cap is less than Rs 2,500 crore and company is having Rs 2,500 crore as cash and cash equivalent which is yielding them the annual interest income and all sort of things.Maybe company will be able to post an earnings per share (EPS) of Rs 9. This has been like a sleeping lion for quite a long time. So, Rs 9 is likely to be FY17, but I am expecting EPS to jump to Rs 12 because once the power generation plant load factor (PLF) of all power generation companies will start, this being the power trading company is giving comfort to both, the users as well as to the suppliers. They will be seen huge beneficiary.

Apart from that, maybe 2-3 small power generation companies which I have touched earlier also in the past, that is Gujarat Industries Power Company (GIPCL) having portfolio of about 850 megawatt of which 500 megawatt is on lignite based mining because I am positive on the lignite based and those having their own captive mines because they will not be impacted by the increasing coal costs. So, one is GIPCL and second is Gujarat Mineral Development Corporation (GMDC). Again, both the companies are almost debt free, showing an EPS of closer to Rs 12-14. A lot of comfort, very strong balance sheets of both these power generation companies. So, these are my few select calls where I will be taking on the theme of the positive view seen on the power generation space. But I will be keeping my neutral stance on NTPC.

Anuj: A word on a couple of other names where we have seen huge cash market volumes today. We may want to look at the delivery volumes. United Spirits and Ujjivan Financial Services. Ujjivan of course, has also corrected quite a bit.

A: I am keeping extremely positive view on Ujjivan. Again, we have given, Ujjivan is the third largest or fourth largest in this micro finance company. I do not think there can really be a better company than this with a net non-performing asset (NPA) of maybe about 25 basis points, 0.25 percent.The kind of growth which we will be seeing from the company, in fact, it has already corrected by Rs 150. And again, the typical behaviour that this Ujjivan has been. Post listing, I have been tracking it very closely that once the stock moves up, it swiftly goes up by about Rs 100 in just maybe a month or so. I am again keeping a positive view.I will not be surprised to see an EPS of Rs 27-28 for FY17 with shocker to be seen from the demonetisation and again the way we have seen the view having changed on the Dewan Housing kind of things can be seen in case of Ujjivan also.

On United Spirits, I will not be keeping a positive view because of the kind of noises which we see on the breweries stock, the ban kind of things. I am not very positive on United Spirits. Maybe the prices may not be able to sustain at the level at which we have been seeing today.

Anuj: We were discussing this yesterday evening and you were pointing out, you were disappointed with refining performance. From here on, do you see more de-rating in the Reliance, considering that the stock has run up quite a bit over the last few days?

A: I do not expect any kind of up move because yesterday also we have discussed about the petchem that petchem has pleased. But actually, I forgot to add, if you really see the petchem division, always, the pet consumption is always low because of the huge consumption in the water bottle.In the winter season we always have seen the water bottle production coming lower so pet consumption is also seen lower. But what has happened in this last one month. When you check with the dealer or when you check with the polymer market, the company has raised the product prices by about Rs 9 per kg in this last one month. And always, these are the import parity prices. And when you talk to the people in the market, polymer prices are going to fall by about Rs 5-6 because the imports which gets planned by the other users of the pet or maybe other petrochemicals, other polymers, it takes about 3-4 weeks.The company always has been very smart in increasing and decreasing the prices. So, actually I am not expecting the things to improve on the petrochemical division in the fourth quarter and it is very difficult to take a call on the refining segment, how far they will be able to really beat the Singapore benchmark where they have really slipped in this Q3 because they have not been able to maintain that gap or differential and the differential which they should have enjoyed of about USD 1.6 has been seen happening on that front.

And actually the second is the cash flow. In fact that is a really very worrying situation because the cash and cash equivalent vis-à-vis debt the gap has widened by about Rs 11,000 crore and that will further get widened by at least by Rs 10,000 crore. So, you have a Rs 10,000 crore cash accrual every quarter and the gap between the cash and debt is widening by Rs 10,000 crore is really seen a concern because company has already made an announcement of Rs 30,000 crore, further investment in the telecom which will not go well with the market. And that amount is going to get deployed probably in my view in Q4 itself.

So, overall you do not find any fresh trigger. In fact, telecom as of now is seen a money guzzler. A huge investment is required, Rs 200,000 crore will probably get surpassed by March 31. So, I am not keeping any kind of positive on the stock. Yesterday I have said that stock can correct by a couple of percentage but it has corrected by about 3 percent or so. But I do not think that this stock will really be seen moving up further. On every rise, we will probably be seeing the selling coming in.

Sonia: Any of these non-banking finance companies (NBFC) or banks that you would be bullish on ahead of numbers because we have seen some good numbers come out from this pocket.

A: Keeping my positive view on all the NBFCs. This is what I have been saying on NBFCs as well as the housing finance companies. So, maybe Manappuram Finance, Muthoot, whether the results are lined up today or tomorrow, I have not kept a track on the results calendar. So, keeping a positive view on that. I will refrain from commenting on Axis Bank, because probably Anuj may get discomfort if I say that probably I am keeping my cautious view on Axis Bank because they have continuously been having disappointed and I am not keeping a positive view.Apart from that, the other private sector banks like RBL Bank or may be Kotak Mahindra Bank, ICICI Bank, I am expecting them to perform better because if you see, the 3-4 results which have come in of the private sector bank, they have all cheered. So, maybe one can keep an eye on Yes Bank and the other stocks like I said, of the other private sector banks, the two banks which come to my mind is RBL Bank and Yes Bank which will really be seen cheering the market. So, keeping neutral to cautious view on Axis Bank but keeping positive view on other NBFCs.Disclosure: Reliance Industries, which owns Reliance Jio, also owns Network18, which publishes Moneycontrol.com.