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Last Updated : Jul 20, 2016 11:23 AM IST | Source: CNBC-TV18

Tulsian on Ricoh India: Rush for exit, there is no hope

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his reading and outlook on the fundamental side of the market as well as on specific stocks and sectors.

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his reading and outlook on the fundamental side of the market as well as on specific stocks and sectors.

"I am more disturbed with the kind of momentum, which we have seen on Ricoh India", says Tulsian. Investors should apply their mind and exit out of Ricoh India if possible, there are no hopes on the stock, he continued.

Speaking about demerger of project division of Anant Raj Global Ltd, he mentioned this is a positive step for the shareholders of the company. He further said, "This is a very pragmatic move having taken by the company and based on this news only, a couple of months back, I have given a buy call on the stock".

Below is the transcript of SP Tulsian’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: I do not know if you saw the news flow on Anant Raj, but I wanted to ask you about that. There is this demerger of the project division of the company into Anant Raj Global Limited that will eventually get listed. For a shareholder of Anant Raj, how should you read into the news?

A: In fact, this was contemplated by the promoters maybe for the last 4-5 years and I am not saying that specifically in respect to project division. If you see the company is having a lot of annuity income and because of that, the debts have been keep rising in the books of the company for the last 4-5 years. So, this is a very pragmatic move having taken by the company and based on this news only, a couple of months back, I have given a buy call on the stock also. So, in the long run, definitely, this will be seen positive for the shareholders of Anant Raj.

Latha: What about the developments in Ricoh India? They have called for an extraordinary general meeting (EGM) where one of the two promoter companies or even both of them maybe, will cancel some of their shares and in some form infuse about Rs 1,100 crore of equity, which is the loss they reported for the previous year. Is this indicating that things are on the mend?

A: I will not be taking any call on this stock and in fact, if you subscribe to all these news flows, I do not think that they have any meaning. They are all meaningless, because the kind of litigations which we have all been seeing. In fact, if the promoter would have been so alert -- I am referring the Japanese promoter -- the situation should have been taken up long back, number one.

Number two, I have been hearing all the experts and the channel experts, the kind of losses the company has been reporting, but I am more disturbed with the kind of momentum which we have seen where the management of the company were involved, a lot many shareholders have got stuck. The retail shareholders have got stuck at the price of Rs 1,000 plus. Many of the experts have been giving a buying call on this stock and in fact, you cannot just say that things were very rosy at that point of time. In fact, things were not looking rosy at that point of time, valuations were all looking stretched. So, at that point of time, the Japanese promoter should have been alert.

There is no point in saying that they are looking to infuse Rs 1,000 crore plus or maybe Rs 1,200 crore plus into the company because those are all maybe to bypass and to escape from the liabilities, which may get arisen from here on. So, if I am a shareholder in the company as a retail shareholder, why should I break my head in all these developments keeping an eye on the convening an EGM of the shareholders, appointment of an independent committee, forensic auditor, infusion of the capital, every investor or every expert has a shortage of time. So, apply your mind on the other activities and bury this stock forever. If you can exit from this stock, nothing like it. Honestly, if you ask me, I have no hopes on the company.

Sonia: I want to ask you about the latest initial public offering (IPO) in town that opens today, Advanced Enzyme Technologies. This is a niche story, right, something that we haven't seen - the largest enzyme producer in India. What would your recommendation be to the investors?

A: This is an excellent company and this is the only enzyme producers in India because if you recall I do not have those data right now but Biocon about three or four years back, they had their enzyme division which they sold off.

However, this company have four manufacturing facilities, three in India and one in California. They have 60 enzymes. They are the largest in India and when you compare it with the global largest player that is Nova Enzyme, they are more into the industrial while they are into the nutraceuticals and pharmaceutical and that is constituting 79 percent of the revenue where the margins are always higher and about three years back they had some problem of recall of the enzymes and that has led to some exceptional losses of about Rs 53-54 crore three-four years back but the company has smartly handled that and have overcome with that situation.

I won't be taking a compound annual growth rate (CAGR) of the company for last five years. I will be only focusing on the results of FY16 where the real takeoff has started for the company from FY15 to FY16 because FY14 and FY15 went off the company for redressal of those recall and all sort of things settling the liabilities. So in FY16, the company has shown 32 percent growth in topline, 51 percent growth in the EBITDA, 57 percent growth in profit after tax (PAT) and posted earnings per share (EPS) of Rs 36.

However, if you see the basket of 60 enzymes, as I said that they have the major presence of 52 percent in nutraceuticals, about 23-24 percent in pharmaceuticals and EPS of Rs 36, I am expecting a growth of about 30 percent going forward over next three years on the bottomline of the company and this is giving an excellent opportunity.

The only problem that retail investors may find it little expensive because this is a Rs 10 share with a price band of closer to about Rs 900 but if someone can keep an eye on this stock, this can be truly be a multi bagger but yes, I advice retail investors to apply in the stock and take a longer term call, maybe gray market premium is indicating a premium of Rs 250-300 but I will advice not to look for listing gain. This is an excellent company where one can bank on.

Latha: Can you dwell a little more on the price band and therefore, the valuation?

A: I have no interest, I am not connected with the company, with management, with product or I am not applying to any issue, so people should not infer that because of this, I have the data in my mind.

Now coming on the price band Rs 880-896, that is what I say that you take the upper price band is going to get discovered, the price will be at Rs 900 and Rs 36 earnings per share (EPS) has been posted by the company for FY16 and that is what I have said that I am taking a conservative growth on the bottomline of 30 percent. I will not be hesitating in giving an EPS estimate of Rs 50 for FY17, maybe Rs 65 for FY18 and then one can extrapolate.

So, the share, which is now seen ruling at a price-earnings ratio (P/E) multiple of 25, may at a P/E multiple of 18-19 and even on an enterprise value (EV) to earnings before interest, taxes, depreciation and amortisation (EBITDA) basis, on a 15 EV to EBITDA, valuations -- that is what I have said that if this would have been a stock of Rs 2-5, probably optically, it would have been seen a cheap stock. But because it has a face value of Rs 10 and price band, I am taking it at the upper band only that Rs 896, then you find it little expensive. But, I will not be calling it expensive at all looking to the financial performance, because FY16 is the real base year for the growth of the company, because they have struggled to address the recall issues. I had an interaction with the management, I had grilled them on all the fronts. So, I am quite impressed with the issue, with the company looking to the FY16 performance having posted by them.

Latha: What would you do with a stock like Glenmark Pharma?

A: Taking a general call first on all pharmaceutical stocks, I have clearly said before start of the July series, about three weeks back that you will be seeing a good upside happening in the pharmaceutical stocks and 4-5 ideas, which have been given obviously, were all frontliners like Lupin, Aurobindo Pharma, Glenmark, Wockhardt and maybe Cadila Healthcare. Those were the stocks recommended and I still keep a positive bias. Maybe Strides Shasun and Divi's Laboratories can also be looked into. Overall I am keeping a positive bias on Glenmark and going ahead also, because I do not see that any kind of negative surprises will be seen from the company. So, keeping a positive bias on Glenmark and as such, a positive bias on the pharma stocks going forward.

Sonia: I wanted to ask you about HDIL as well. The promoters will be getting some warrants issued and looking to infuse about Rs 150 odd crore. That stock has been on an uptrend for a while. Would you still back it at this price of Rs 100?

A: I have given a buy call about 3-4 months back when there were all kind of development plan (DP) changes increase of floor space index (FSI) and all sort of things was there when the stock was ruling closer to about Rs 60-70.

But specifically, I am referring to the debt reduction plan of the company. They have a debt of closer to about Rs 3,500 crore and if you have been hearing the management for the last 2-3 years, you have not seen any significant move having taken up by the management to reduce this debt in spite of the commentary given by them that they are looking to monetise the land parcels in Virar and Vasai where they have huge land parcels being held by them.

Yes I agree that even a small amount reduction or infusion of fresh equity into the company in the form of fresh issue by warrant or equity is seen good, but Rs 150 crore is not seen enough. So, maybe looking to the current price, I do not think -- because one has to now wait for their projects to get completed which they have 4-5 projects in Bombay, they are still stuck with the litigations to their Kurla projects with GVK. So, I will not be taking a fresh buying call on the stock at the current level, but yes any kind of move like issuing warrant for Rs 150 crore to the promoters is seen as a debt reduction plan where they have to be a little more active.

Latha: Any of the midcap company numbers that impressed you?

A: All the sugar stocks are falling in the midcap. So, I am just keeping an eye on the UP based sugar mills only where the large inventories are held by them and whatever data I have collated is up to June 30, all of them have sold just one third of the inventory, because they will all be equally selling one third, one third, one third in the next three quarters because crushing season will start in the middle of November. So, the performance of all these companies are going to be seen quite good.

Second could be the dye and dye intermediate space because the way the prices have risen from March 30 onwards because of the plants closure in China.

Third could be the tile stocks where the anti-dumping duties from China have been levied from March 30 again. So, the effect of that will again get reflected fully in this full quarter.

So, all these three sectors will practically be enjoying the full benefits of the entire 90 days of robust working. So, I am keeping a watch on these three sectors where you have about 15-20 ideas available.

First Published on Jul 20, 2016 09:37 am
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