Tulsian's take on Bharat Financial, V-Guard Industries & others

In an interview to CNBC-TV18 SP Tulsian of sptulsian.com shared his view on Bharat Financial stock after it slipped in trade on the Maharashtra government's plan to set up a special investigation tribunal to enquire into operations of microfinance comapnies in the state.Tulsian also shared his take on other stocks like Mandhana Industries, and V-Guard Industries among others. Below is the verbatim transcript of SP Tulsian’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: The stock of the day undoubtedly is Bharat Financial Inclusion. Now that stock has lost 25 percent of its value in this month, what kind of a further downside do you see in the stock because of the kind of comments that the management made earlier in the day. A: If you go by the management commentary, definitely that is positive. I don’t see any reason for the stock to fall so much. However, if you go by the volume trend today, we have already seen a volume of more than 1 crore shares and we all know that Bharat Financial doesn’t have any promoter or maybe promoter stake of just couple of percentage while the huge holding is held by the foreign investors. So, if anything to go by today’s volume and if we see the selling maybe to the extent of about 15-20 percent also in the stock, then that will be seen quite negative that the FIIs are seen selling their inventory or maybe their stocks which they are holding there. However, honestly, if you ask me, I don’t see any reason. Even if you take the business metrics of 20 percent from two states i.e. UP and Maharashtra, it will be wrong on our part to compare this situation with that of Andhra Pradesh because the situation were all different at that point of time. Now, come on the microfinance space; this company is charging the lowest interest, sub 20 percent and I don’t think that below that kind of which has all been in fact recognized by the Reserve Bank of India (RBI) also where the rate of 21-22 percent has been found to be reasonable getting charged by the microfinance companies, so, maybe whatever political noise which we have seen in Maharashtra, and the statements having issued by the ministry is largely to soothe the nerves of the borrowers, I am not taking a negative view on the stock. Only thing that, yes, the kind of erosion or the fall which we have seen in the share price have taken place by about Rs 150 in this last one week, is really scaring. However, there is again a sliver-lining that probably the stock is hitting or forming a bottom because the presentation or the analysis which has been presented by the company this morning to stock exchanges are seen quite good and maybe if you factor that in, the stock qualifies a buy. Latha: A more important problem that is irking them is a RBI forbearance that for 60 days if people don’t pay back the loan, the company in question need not classify them as NPA. At no time it told the customers that you don’t have to pay for 60 days. All it told the companies was that for 60 days, if the payment doesn’t happen, you don’t have to classify it. It was purely an accounting advisory given to the NBFCs and banks but that has gotten misreported and misinterpreted. Therefore, do you fear that some people may not pay? A: Again the vested interest people will all create these kind of noises. You are right and we all know that the window of 60 days in just recognizing the NPAs was in respect to the lenders and that does not mean that the borrowers have given moratorium of 60 days that they can extend their repayment. So, if someone is really twisting that to their advantage and we always all know the political interest which has been wasting maybe by the ministers or maybe by the ruling party or maybe by the opposition, that has always been a problematic area seen in some of the cases. So, if that is happening, then it is very difficult to take a call because then that will apply to all the NBFCs that means all the NBFCs, all the banks, all the microfinance companies should not see any kind of repayment and if this logic is applied for Bharat Financials, that logic can get applied to all and you can start misguiding those borrowers. However, what is happening now is that even the borrowers and all they understand but sometimes incase of this microfinance companies, and if you see the typical business model of Bharat Financials, they lend to the individual borrowers and collect on a collective basis from one association, one cooperative. What is happening in that case that yes, the leader and all that, they take lead and the arm-twisting happens at those levels also. I am not trying to point out my finger at any one association or one set of borrowers but this is what is seen happening typically in case of Bharat Financials because as I said that they lend individually to each borrower but collect on a collective basis from one association or one body of the borrowers.Sonia: I wanted your thoughts on some of these non-index large caps, names like V-Guard Industries. Any idea on how to approach them now because they have been falling this month or in the last two months but by and large the year has been very good for them?A: I agree that the performance of the company has been good but you have to see the relative valuation of such companies in context to the other peers as well. In fact I have been saying this and I am not trying to sensationalise here but after this demonetisation take from me that in fact in our in house we have made a caution list of about 100 companies on which we are keeping either they are overpriced or if you see the valuations they are all going up quite high or the unnecessary momentum played by close sources or the promoters are seen in the stock. I am not seeing that thing is happening in V-Guard but that stock has been definitely looking expensive.So, my advice is that here it is not the occasion to chose the potential stock but here one must keep a list ready where you have the caution as well. Just to give a case in point the Mandhana Industries and Mandhana Retail we have seen what kind of frenzy having built on the first two days of listing and that has all got fizzled out. I have received at least 50 queries in which the people have said that they have all got stuck and we have been seen continuous down circuit for the last three days. So, what my point is that yes, it is very important to be cautious on the very expensive stocks also which are not supported by the fundamentals of the company.Latha: If you can also tell me, you said after demonetisation your in house research looked up some companies as potentially expensive. Where are the sectors you think demonetisation would have had a negative impact given the prices of this stock?A: There is no question of direct impact on demonetisation. I am a little vocal and a little blunt here. Let me tell you that this sector doesn't make any difference. I don't want to name the companies here. I can just say that the kind of operations which they have been showing by the artificial top line and bottom line all those gimmicks will stop because take the case of SEBI long term capital gain (LTCG) orders. Now the income tax department has opened the LTCG cases on the manipulated stocks and all that. So, these activities will stop and those activities are not seen in any particular sector.So, that is what I have said that we have gone by the expensive valuations of many company. As I have said that still maybe the kind of one stock which is ruling at Rs 1,000 plus honestly the in house research have said that the stock is not even worth Rs 100 and that will get proved in the time to come. So, my point is that these companies have been maintaining their financials by window dressing and that will get over with this demonetisation because from here on things will not be easy to manipulate the accounts going forward.