Tulsian upbeat on Motherson Sumi, Bharat Forge, Crompton

Below is the verbatim transcript of SP Tulsian’s interview to Anuj Singhal & Sonia Shenoy on CNBC-TV18. Anuj: Since you have covered these USFDA stories in the past your thoughts on Sun Pharmaceutical? A: USFDA has become a very critical issue and in fact if you see in this last six months you have not seen any kind of significant relief coming in. On Sun Pharma, in fact I have been keeping a cautious or  maybe neutral to negative view for the last two years since the stock was ruling at Rs 900-950 or so. I have not honestly seen any kind of triggers coming in, so may be USFDA per se for Sun Pharma has not seen such a big negative because that has been largely factored in, but if you see the situation now pharma stocks are not in the focus as of now broadly. If you take a larger picture on the pharma stocks we have only been giving buy call on may be few stocks like Aurobindo Pharma and Bliss GVS Pharma which we have performed very well. Sun Pharma has not being doing that well. If you take the situation along with these developments on USFDA front probably this will move in a range, will be finding it very difficult to move past Rs 700 and maybe hovering around that. I don’t think relief can really be expected from the USFDA maybe in next three to four months which is seem to be a very longer period by the stock market. Anuj: For Crompton Greaves is the risk reward again favouring investors here or is this is stock that you would want to just take your foot off and see where it settles? A: After hearing the management commentary, I would say that I will take a screaming buy call on the Crompton Greaves for the simple reason – to put things in perspective. If you take the situation I don’t think that the deterioration has really happened, further on the consolidated. I am not referring on the standalone basis because there has been no issue about the performance of the company on a standalone basis. Come quickly on the consolidated things - there one B2B automation business is very much on place to get monetised maybe by end of January as stated by the management for about 110 million euro. Now the derailment has really happened in case of transmission and distribution (T&D) process, T&D monetisation, the process for which has to be initiated again by the company for which they have earlier agreed at 150 million euro. Even if I presume it to be happen at about maybe 100 million euro and in the next six months what is a financial situation of the company. The net debt of closer to about Rs 1,000-1,100 crore because if you knock-off the cash on hand of about Rs 800 crore out of Rs 1,700 crore total borrowing, I don’t think that you will really be requiring any kind of comfort more than this. Now come on the consolidated financial performance also except for the discontinued operations which are giving a pain of about maybe Rs 40 crore as the quarterly losses and may be the interest burden on this Rs 1,000 crore maybe Rs 1,700 crore in fact that is a critical point. In fact if you want to buy this stock because management has been very categorical, if they would have said that we will try to revive or restart the T&D operations that would have been seen negative. However, if they have said that the process will again be reinitiated and that is a very positive move. Once the things will come in that years and in-principal agreement with may be validity period of 60 days, 90 days, 120 days has been entered into again you will see the stock bouncing back very fast. The best part is that the weak hands of the trading positions have all been out. Stock having corrected about 20 percent in this last three or four days so, that is a very positive for the stock. In fact, I said day before also that I don’t see the stock falling below Rs 60-61 in the worst case scenario even if that private equity (PE) investors moves out. So, I will be taking a positive call. Obviously, the timeline for this investment has to be for three to four months in which you can expect a return of 20-25 percent.

Sonia: There has been a fair degree of run up in stocks like Quick Heal, Nucleus Soft, TVS Electronic that are likely to benefit from a cashless society and to be fair many of them have really not delivered on earnings; do you see any of these companies have the potential to execute the impending opportunity that this space provides? A: It is very necessary to see the valuation and the kind of run-up which we have seen in all the stocks. Take the case of TVS Electronics - I am very positive on the TVS Group. I have always given recommendation on those stocks. If you see the EPS of closer to about Rs 3, I don’t think that you can justify your price of Rs 185.

Quick Heal Technologies, yes the IPO came, I think about six months back or may be about eight months back at around Rs 300 plus. The business model at that time we have taken that it is looking expensive and it is worked so may be Quick Heal because this antivirus software they are making it which will be widely used by practically all. So, yes maybe Quick Heal I can take a call.

If I am forced to take a buy view on the other stock it could be HCL Infosystems but except for that I don’t think I will really be going with either with Nucleus Software Exports. Nucleus is a good company, but it has also seen a big run up having taken place and even the caution will continue on TVS Electronic. So, may be Quick Heal and HCL too could qualify as a buy amongst this.

Anuj: I know you are positive on Glenmark Pharma, in last many years Glenmark has not been able to fulfill its promise. Do you think it could do that going forward? A: I have said just now, in fact all the pharma stocks are not doing well. So, if you want to see the Glenmark kind of things I am positive on Glenmark, Wockhardt, Aurobindo Pharma, Bliss GVS, Kopran kind of stocks. If you want the biggie’s to perform then maybe Wockhardt is waiting for the USFDA but there has been a big disappointment over there for last maybe three years. Auro Pharma has done very well, but coming specifically on Glenmark if you want these stocks to perform you need to have the liking for pharma stocks also which is not seen now prevailing. In fact no one is interested in taking a call on pharma and I don’t think that unless until the clear clarity emerges on the USFDA fronts I am not saying that Glenmark is a major victim of the USFDA, but still the kind of growth all these companies are depending for the growth to be seen in US markets. Unless until, we have the policy clarity or maybe the move by the new government till then I don’t think that one should really take a call on these stocks. However, from a medium-term to long-term view I remain positive on Aurobindo Pharma and Glenmark both. Sonia: We were just talking about how some of these global plays are doing very well names like Motherson Sumi, Bharat Forge, these are stocks that you have been bullish on for a while. Do you see a couple of good quarters for these companies and is it too late to step in now or one can still take positions in names like Motherson and Bharat Forge? A: Instead of taking a global theme it is necessary to take the sector theme and that was my earlier recommendation also. If you recall one was auto ancillary and second was the metal space or may be the natural resources in which the non-ferrous was also included. Both this Bharat Forge and Motherson Sumi I have been keeping extremely bullish view and that bullish view doesn’t end here because we just can’t go with a one or two offline events which may be seen negative like quarter two seen in case of Bharat Forge. However, thereafter may be couple of days we have seen North America truck sales moving up sharply and the management guidance of FY17 in spite of this situation having been known only two days back has been quite robust and positive. Similar, is the case with Motherson Sumi also. Now coming specifically on the other themes also like take the case of NMDC again the stock has moved up today, So maybe the situation which we have been seeing in case of non ferrous that is a selective non ferrous like may be zinc and lead may be to an extent copper. Similar is a case with iron ore and manganese ore. There are many stocks operating in that space which I have been recommending, Indian metal, ferro alloys, NMDC, MOIL, Sandur Manganese all in the ferrous space. In the non-ferrous I have been given a call on Hindustan Zinc, National Aluminium Company, so these kinds of things are really looking good and I think that may be if one has to chose between them you have to have a little longer horizon because natural resources in the ferrous space can really be more rewarding for the next four to six months because of the huge demand coming in from China, revival of the steel industry and maybe some plant closure across the globe.

Anuj: Anything to read into this fertiliser rally or is this just one of those rallies which starts ahead of Budget and then we see that fizzling out? A: I don’t think that this could be termed as a Budget rally, but what we have seen that in spite of this demonetisation the rabi sowing has been seen quite good. It is actually 7-8 percent higher and whenever you have these kinds of things, data’s coming in definitely there is higher off-take for fertilisers is going to happen one month down the line. Prior to that, we see the big dispatches coming in. If you really want to take a positive view on some of the stocks maybe I will go with the complex fertiliser one but not the pure urea play. Anuj: Indiabulls Real Estate you have been positive on Mumbai real estate stocks, 6 percent higher now on Indiabulls Real Estate more to go you think? A: More to go and may be in fact we have seen some kind of negative news coming in the form of share buyback from the open market at the price of Rs 90. On that day I have said that this kind of announcement management should refrain from announcing that to when the company is debt ridden. However, maybe if you take a call here on because I have been keeping the positive view on the real estate stocks. If you see the Indiabull Real Estate in specific I don’t think that the business of these companies is going to get affected so, yes keeping a positive view on the stock. Sonia: Wanted to ask you about some of these non-Index largecaps like Page Industries that have resumed their uptrend. Are these stocks that you like and that you would recommend putting money into? A: I have never liked this kind of stocks Page Industries, Jubilant FoodWorks and all that .If you see the two years return I don’t have those data with me why to plunge into such an expensive stocks which are not able to give you returns and which gets fizzled out with every quarterly numbers because if you really see in both the cases I am not saying that Page Industries have been posting disappointing numbers, but the kind of expectations or the kind of growth which they should demonstrate have never been seen. While in case of Jubilant FoodWorks the things have always been in decline in trend in terms of profitability so I have always refrained myself away from both these stocks.