Tulsian tells: Why he does not have a +ve take on liquor stocks

In an interview with CNBC-TV18, market expert SP Tulsian listed his stock picks for the day and shared his market outlook.Below is the transcript of SP Tulsian’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18. Anuj: The stock of the moment now is United Spirits. It has in fact moved to the low point. I would imagine because of some fears on the goods and service tax (GST) rates. Would you buy this stock at Rs 2,100? A: If you are long-term investor, then it qualifies as a buy. But because there are all the reasons to remain negative on these stocks because we cannot expect the government to be liberal and there are no reasons for them to be liberal because market has, in fact I heard just now Shereen, market has taken it as a positive that the net effect of the GST will be seen lower on this breweries stocks and cigarette stocks. In fact that would be a wrong thinking. You just cannot presume that the maximum slab rate, whether it becomes, it comes to 26 or 28 percent will be the tax rate for all these products because there are cess there. The proposal is all there under consideration and it will be marginally higher by may be a couple of percentage or reasonings. So I do not think this is the right time. And in fact, the liquor ban which we have been getting from all the states, the kind of survey which has started coming in the rural village, people are spending more on the liquor than on the medicine is definitely seen a very big social problem, and in fact, if you see, the woman voters and all that to woo them, the liquor ban is being initiated by the states, though it is a very positive step taken by the respective states. So, overall, you do not have any comfort right now seen for taking a positive view on the United Spirits or maybe any other liquor stocks at the current situation. Anuj: I had to ask you a question on NMDC, what price action today telling you, is it telling you maybe that monthly price hike didn’t take place today, because it is down 4 percent while rest of the metal stocks are still quite okay? A: Two points firstly NMDC and MOIL they never announce the price hike on the first day of the month if you see the trend that has been made on the third, fourth and fifth also. Number two I don’t want to name the broking house or maybe the research report, which has been released giving a negative outlook. I am not trying to cast any aspirations or want to criticise, a similar kind of report were released about couple of months back by a domestic brokerage also which has given a target of maybe Rs 64-65 when the share buyback was announced at Rs 94 thinking that this buyback will flop and all that. I honestly don’t see any reason because if you have this kind of research report getting released which says that Rs 105 will be the target. Definitely you will see the kind of profits having earned by the investors of about 30 percent in this last month you are going to see some kind of profit booking coming in. Third point if you really see the real effect if you take the situation of Q2 here I just want to compare with the cement stocks as well as with the NMDC also. You won’t find anything attractive in the Q2 numbers of NMDC, because the price effect has all come in from October 1 and now the second price rise will be seen in the month of November, because NMDC has been going every monthly increase not like MOIL which goes for quarterly increase and this time they have changed their system in spite of quarterly prices having announced by MOIL last month - - what my point is that the situation on the iron ore front is seen very strong, very robust demand coming in with the increase price. Sonia: Dr Lal Pathlabs came out with a rather good set of numbers this time around, on expected lines. Income growth of more than 20 percent and margins too very healthy. At what point would you start to get a little cautious on this stock? A: Definitely, the numbers are excellent. The operating profit of Rs 73 crore against on a sequential basis if you see, it is Rs 54 crore. But if you take an estimated earnings per share (EPS) maybe of the company at about Rs 25 for FY17, I do not think that the stock warrants the investments or the valuations at a price-earnings ratio (P/E) multiple of 40 because we pray that the things of the chikungunya or maybe dengue kind of things does not prevail all over the country because of the monsoon we have seen those kind of things giving them a very good margin and very good business. Generally, in winter, you have the lower kind of these epidemics or situations prevailing on the health front. Monsoon is always the bad for us and good for pathology lab companies and all that. So, I will not be taking a call of making investments at a P/E multiple 40 on the current year’s estimated EPS. Sonia: Wanted to ask you for your thoughts on TTK Prestige. The stock is down about 10 percent. I know you like Hawkins Cookers in that space, but TTK, do you think it deserved this kind of a reaction or is it just profit taking after good earnings? A: If you take a call maybe of this Q2 numbers, they are positive as well as negative. If you see on the operating profit, about Rs 51 crore, plus, against the sequential Rs 47.5 crore, Raw Material prices have reduced by 2 percent. That means the company has enjoyed the margin expansion by about a couple of percentage because of the simple raw material reduction. I do not see any problem in the volume growth, volume growth has been very good, margin as I said, because as I said, but because market was expecting the volume growth to translate into a higher margin. Plus, coupled with the raw material advantage also. So, maybe because of that, there has been a bit disappointment, but if you again see, we have been talking for a while about these all expensive stocks and if you see, even with a Q2 EPS of Rs 30, the stock looks quite expensive, maybe with a P/E multiple of closer to about Rs 30. And you cannot expect the similar kind of performance to get repeated in the H2 because of festive season you have seen good numbers coming in Q2. So, maybe some profit booking will be seen. I will not be surprised to see the price correcting to a level of Rs 5,500-5,600 where again the renewed buying should come in. But I am not disappointed with Q2 numbers. You can say that those numbers are flat. The savings of 2 percent only has got contributed to the operating profit margin. I am expecting at least 10 percent price increase for this month from NMDC, maybe this is just seen a profit booking which has come because of the research report having released. I am keeping my positive view intact on the stock and won’t hesitate to see price of Rs 150 also in the calendar year 2016.