Subscribe to PRO at just Rs.33 per month. Use code SUPERPRO
Last Updated : Oct 20, 2016 06:55 PM IST | Source: CNBC-TV18

Tulsian tells: Why Yes Bank, RBL attract him after Q2 earnings

In an interview with CNBC-TV18, SP Tulsian of sptulsian.com listed his stock picks and market outlook.

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 verbatim transcript of SP Tulsian’s interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: I don't know if you are tracking Navin Fluorine International Limited since you are such an expert on chemical stocks. I am asking you without warning. There is a 19 percent jump on that stock and the only news I could get is that starting Sunday the Indian government has signed the Montreal Protocol where we have agreed to lower our hydrofluorocarbon (HFC) releases. I don't know if it is released. The only common word is fluorine for both these things. Should we read anything into this news or what is pushing up Navin Fluorine?

A: This is more to do with the sentimental effect. Firstly if you come on this Montreal Protocol on the HFC this news has been there for last 10 years and that is the reason this Gujarat Fluorochemicals Limited and Navin Fluorine has been going up. And if you see the replacement of gas that is N12 and N22 but specially for India I don't have the timeline in my mind but it has been given till 2025 or 2029 to India or may be 2030. That means India has been given an extension of extra five years.

So, you have maybe 12-15 years to replace that gas and I don't think that the thing should be read too much and this news actually was germinated about a decade back.

In fact it has germinated about a decade back when both the stocks used to rule maybe Rs 30-50.

So, I won't be taking this as a news for the stocks to move up but because of the sentimental reason we see this kind of spurs coming in but as such Navin Fluorine is a very good company because when you compared this two company Gujarat Fluoro and Navin Fluorine in Gujarat Fluoro actually because of the wind power segment the share is not getting good valuations because that sector is really performing very badly.

But this Mafatlal Group company Navin Fluorine is doing very well. So, yes, maybe but at such a risen level I won't be giving a buy call.

Sonia: Absolutely flat on the stock right now at about Rs 1,080 or so. Are you also expecting a soft gross refining margins but a positive surprise in pet chem?

A: Actually market seems to be too cautious, but I am not expecting the kind of estimations which have been given by the market. Maybe on the gross refining margin (GRM) front, I am expecting it to be about USD 10.6 per barrel and if you take the break up, this USD 10.6 is expected to include an inventory gain of USD 1.6 per barrel.

That means a USD 9 margin. If you take GRM scenario, in this September month, there has been a sharp increase in the Singapore benchmark GRM which we have seen. Maybe in the month of July the forward contracts will help the contracts will help the company to maintain their GRM.

So, I will not be because over a quarter-on-quarter basis, you may find, because the kind of estimations given that USD 9-9.5 which always includes an inventory gain also. If you take the core GRM without taking into the inventory gain, then I agree, but as I said, USD 10.6 is my estimation.

And now, this time, the more on the refining front, the crude throughput processing will increase sequentially. So, also add to the earnings before interest and taxes (EBIT) level of the refining segments and that is the reason I have estimated refining margin at Rs 6,210. But I am expecting a huge jump seen coming in from the petchem segments and this time. The petchem EBIT is likely to cross Rs 3,000 crore.

Because if you see, polymer and polyester, both are doing quite well. And maybe this Q3 going forward and they will be completing their paraxylene expansion also of two million tonnes and I think that the production will stabilise in this Q3, but that is the forward scenario.

But overall if you take the scenario, petchem will really be making quite a fall in the refining and on the petchem segments, I have taken EBIT at Rs 3,090 crore against Rs 2,806 crore what the company has posted on Q1.

So, if you take this overall scenario, but generally what happens, the bottomline which is given by the analyst are largely controlled by the interest income factor because sometimes, you have higher interest income, sometimes you have the treasury income getting booked by the company in the particular quarter.

So it is essential to focus on this two core segments that is refining and petchem. I am expecting good results, good ramp up in the earnings and the volume of petchem and refining, I am not expecting it to be as tepid as expected by the market.

Latha: You said Rs 6,100 crore for which one?

A: I have said Rs 3,090 crore for this one and Rs 6,210 crore for refining segment, the EBIT. I am referring earnings before interest and tax. Rs 6,210 crore for refining, Rs 3,090 crore for petchem.

Latha: You therefore think that the stock has legs to move up?

A: Maybe Q2 results, as I said, there is no point, if you see these kind of performance coming in, then market will be taking it positively because if you see the situation going forward, as I said that pet coke gasification plant and paraxylene capacity addition. Those are seen to be the big trigger because I am not banking too much on Reliance Jio. In Q3, you will not be seeing anything. In Q4, you will not be seeing anything. So, for next two quarters, Reliance Jio is out of the picture on which the market is seen to be quite gung ho.

But I am seeing more positive on the pet coke gasification plant and the paraxylene which I said that the expansion is seen on the schedule and paraxylene capacity may go on stream or maybe in the next couple of weeks as well. So, I am keeping a positive stance so Q3 mainly on the petchem segments but I will not be too much disappointed with the Q2 numbers also but that will not be seen getting reflected into the share price.

Sonia: Today we saw good numbers come in from LIC Housing, RBL Bank was a strong showing with a profit growth of 35 percent. Anything that you like from the midcap space today?

A: RBL Bank was expected to post the good numbers and if you recall since the bank went with initial public offering (IPO) I have been giving a strong buy call and if you see actually on all parameters whether you see net non-performing asset (NPA) fell to 55 bps from 66 bps in spite of the lower treasury earnings before interest, taxes (EBIT) of Rs 24 crore against Rs 57 crore quarter-on-quarter (Q-o-Q) the bank has performed very well largely because of the cost to income ratio also. So, on all fronts the bank has done exceedingly well.

In this quarter RBL Bank they had the provision of about Rs 28-29 crore because of the 10 percent stake having acquired by them in the microfinance company. But in spite of them they have really been able to perform very well. So, positive view continues to remain.

I am expecting the same kind of at least 30 percent growth to be seen from RBL Bank for next two financial years. That means for next six quarters I don't think you will be having any kind of problems or any kind of issues.

Coming specifically on LIC Housing Finance yes, because in the Q1 we have seen extra provisioning of about Rs 110 crore while in this quarter it is Rs 30 crore. So, even if you take this extra Rs 80 crore there has been firstly I am unable to understand there has been a lower Rs 10 crore savings on the employee cost on a sequential basis, how that has come. So, that has also seen the operating profit rising of LIC Housing but still if you take on the overall all parameters that things are quite good, the results of the LIC Housing Finance has been quite good.

Sonia: You track some of these companies like Kajaria Ceramics, what did you make of the numbers this time. The stock is down 10 percent. It has been a great wealth creator, but now seems like it is unravelling.

A: Maybe I won't call the Q2 numbers as disappointing. Maximum you can see that the flat numbers have been posted and I don't think that this 10 percent correction is warranted on the stocks. So, maybe if I review the Q2 numbers having posted by the company probably I will advice a buy call on the stock at the current level of Rs 660.

Latha: Any of the other recent numbers that were announced interest you, Thirumalai Chemicals for one, it looked like a turnaround candidate. Bayer CropScience Limited there is also that Monsanto angle over there. There were some smaller companies like Agritech Foods etc. Any of the recent numbers you want to speak about?

A: Actually two banking numbers have really attracted me. One is of RBL Bank which we have already discussed, second is of the Yes Bank. I don't think that one can take a positive call on Thirumalai Chemicals because if you see phthalic anhydride and maleic anhydride there are two manufacturers, that is Thirumalai Chemicals and the IG Petrochemical and we have been giving buy call on both and in fact both the stocks have risen by almost 100 percent in this last six months in anticipation because if you see Q2 numbers of last year that is FY16 was very bad. In fact IG Petro is also going to post similar kind of number.

So, I don't think that one can really in relation to the present market price one can say that Thirumalai Chemical numbers were definitely very good with earnings per share (EPS) of closer to about Rs 16 but if you take on a sequential basis Q1 EPS was Rs 20 while Q2 EPS was Rs 16 while the market was expecting the same kind of and we have been taking a call on the chemical and dye intermediate stocks these two ideas were also in the same category. So, I won't be taking a call now on the Thirumalai Chemical and as I said that IG Petro also is a similar product line phthalic anhydride I won't be taking a call on that also. So, overall maybe DB Corp I am not too disappointed with the numbers but maybe I won't be taking fresh buy call looking to these results except on RBL Bank and Yes Bank.

Sonia: Any thoughts on either of these name, Biocon Limited and Syngene International Limited?

A: Both the stocks have run up quite a lot and we generally always try to find out the stocks which can seem to be an outperformer. So, I won't be taking a call at these prices. I am not saying that I have any kind of doubts on the results to be expected from both these companies but I won't be taking the call now because both of them are seen quite expensive.

Latha: Syngene International limited has risen quite a lot. Any thoughts on any of these stocks, Biocon and Syngene?

A: Just now I have expressed my views on both that I won't be taking a buy call on that.

Latha: Is that one of your stocks at all, Ashok Leyland?

A: Amongst the auto stocks I am now focussing more on Mahindra and Mahindra limited (M&M) for a relative performance maybe in the next couple of months because I don't think that the Q2 numbers will really be cheering from Ashok Leyland but definitely that will be seen better from M&M.

If you take the kind of sales which the company has posted on the tractor and on the passenger vehicles. So, amongst all the automobile stocks probably the focus lies in more on M&M over Ashok Leyland.

Disclosure: Reliance Industries, which owns Reliance Jio, also owns Network18, which publishes Moneycontrol.com.
First Published on Oct 20, 2016 06:39 pm