Tulsian positive on SBI, enthused with Hindustan Zinc

In an interview to CNBC-TV18 SP Tulsian, sptulsian.com spoke on stocks like Triveni Engineering, SBI, Bosch, Hindustan Zinc etc. Below is the transcript of SP Tulsian’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18. Sonia: One of the companies that has disappointed this time is Bosch. The margins have come in at multi-quarter lows and this is one company that had delivered for many years. Were you disappointed as well and how would you approach the stock from here on? A: Highly disappointed because if you see, I have been closely tracking the auto ancillary stocks and you cannot expect, you have never expected this kind of results to come from a Bosch because there are a few of the companies which are always seen to be doing quite well in the auto ancillary space and they have the bluest of blue chips in the lot. So, if you see this kind of performance coming in, definitely it is a cause of concern. In fact, the erratic results or erratic behaviour of Bosch has been seen for maybe last one year, though it has stabilised in the last three months or so, but yes, the results have been a big miss. Anuj: The other headline of the day, State Bank of India. What did you make of the numbers and the asset quality issue here? A: Actually I am not so much disappointed on the asset quality because if you see, the net non-performing assets (NPA) has risen by about Rs 1,400 crore with net NPA rising by about five basis point. But the way we have been talking of that lot of money has been received by the bank in this demonetisation towards the discharge of their sticky loans and the kind of increase in the deposits because SBI being the maximum beneficiary, of the total funds having come in, they must have garnered about 30 percent and more than 55-60 percent amongst the PSU bank space. So, maybe in that background you may say that the expectations were a bit high. The bar was raised high for the banks on account of the asset quality as well as on the deposit fronts. But if you really ask me, I am not disappointed because if you see the mixed numbers having come in, some of the public sector banks have really disappointed, I am not worried for the smaller ones. Like Dena Bank having disappointed today or Union Bank or so many other banks. So, I will take this SBI Bank on the expected lines with a better or with a positive outlook going ahead. Anuj: As a long-term investor in Triveni Engineering, how disappointed were you with the fact that they have shelved the plans of demerger? A: Two things, in fact maybe I do not know whether the market has been so much disappointed with the demerger having called-off. That is definitely a trigger because if you see the kind of value creation or value accretion having happened on account of Triveni Turbines, same thing was expected by the market from gear and water solution division also. People were expecting that probably the total combined value of the share will be having 10 percent assigned to that and then it can give a very good value accretion. But I am not so much disturbed and worried on that because the way the things have been dilly-dallying, they have changed their petitions, they have changed their schemes and all that, it was hinted maybe 2-3 months back that probably it may get called off, number one. Number two, I am more worried on the off-season expenses. There are a few companies which are providing the off-season or which are capitalising the off-season expenses. Let me just quickly explain. Like Dhampur Sugar, Triveni, DCM Shriram Industries, what they do during the month of April to September. The mills are not operational so they capitalise all the revenue expenditure. Same thing is done by Triveni Engineering also and if you see their Q3 numbers, they have capitalised or they have not charged Rs 85 crore to the profit and loss (P&L) account in Q3. That they have deferred. In note number six, if you see to the accounts, they have stated that also and so this is just a change of policy. If they would have done it, then probably the operating profit which has come at Rs 110-115 crore would have been very lower, meagre to about Rs 30-35 crore. No doubt that the western Uttar Pradesh is seeing better recovery, where Triveni is located and they have a very good recovery. But the more disappointment, maybe those who are fine-tuned or read the minute numbers got disappointed with the deferral of these off-season expenses and that is going to impact Q4 numbers to a great extent because entire Rs 84 crore has to get charged in Q4 by the company and that will be seen a negative. Sonia: You want to comment on Hindustan Zinc? The stock is just about flat, but any thoughts on these earnings? A: The stock ran ahead of the expectation because if you let me just quickly add here, first the lead and zinc, both have seen the excellent realisation. Now just let me put a picture here. If you take a capacity of zinc, they have about eight lakh tonne capacity but the lead is about three lakh tonne. And just to give the comparable, there are three secondary lead smelters. Today Nile has posted the numbers, Rs 28 earnings per share (EPS) in Q3, Pondy Oxides & Chemicals, Gravitas they three are the secondary lead smelter and all of them have seen excellent numbers being posted. So, those who are making the virgin material, you can understand that what kind of profitability, number one. Number two, the company has migrated from underground mining to open cast. And actually when the second quarter numbers came in dull, at that time, in the management commentary they said that this is now behind us and the benefit of the open cast minings will all be seen from going forward. And London Metal Exchange (LME) having supported on the lead and zinc both, I think the numbers are really good, but actually because the stock ran ahead of that, maybe two news got factored in, better Q3 numbers and the expected residual stake sale by the government of India. But I am very positive on the Q4 numbers as well because I do not see lead and zinc prices, both are going to remain stable and keep hardening. Maybe I am having a soft stance on the silver realisations, but that will get offset by the realisation from lead and zinc. So, I am convinced and I am very enthused with the numbers which the company has reported.