SP Tulsian of sptulsian.com tells CNBC-TV18 why he is positive on only select information technology stocks and why his take on Trident as trouble brewing for its competitor Welspun might mean more business for the company.
SP Tulsian of sptulsian.com tells CNBC-TV18 why he is positive on only select information technology stocks and his take on Trident as trouble brewing for its competitor Welspun might mean more business for the company.
He also shared his views on other stocks like Triveni Engineering, Shilpa Medicare, Century Textiles, IGL, among others.
Below is the verbatim transcript of SP Tulsian's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Anuj: First your thoughts on the IT space and the commentary from Vishal Sikka. Do you think IT stocks are set for more underperformance?
A: Definitely seeing the commentary of the Vishal Sikka, you won’t have comfort on the IT stocks, but I don’t think that this is the right strategy for the investors. Maybe, the strategy may be different for the traders, I have been keeping a positive view on the IT not across the board, but maybe the stocks like Infosys,TCS or maybe Mindtree, Hexaware kind of stocks, where bottoming process has already been happening. I won’t be too comfortable on HCL Tech which has seen a good run up or maybe stocks like Wipro, but yes these 4 or 5 stocks if you are an investor.
See what generally happens that, we see Infosys has now corrected by about 22-24 percent from its recent high, we keep getting all kind of buy calls even from the fund managers, savvy investors that these are the things evergreen stocks, must have in portfolio kind of things, but why we don’t get similar advice when the stocks correct by 23-25 percent in less than 6 months and which is giving a buying opportunity. You just cannot see the major variation in the profitability going forward. Vishal Sikka has said that maybe after Q2, we will be taking a review or call on the guidance, so maybe Q2 will be out in the next 45 days or so. We will get to see the results by then, then things will see that nothing drastically has seen negative happening for these stocks and I am having quite good confidence on the TCS and Infosys both going forward I am not negative at the current level at which they are prevailing, so maybe if you are a technical trader and if you taking a technical call you may not buy now at the present level or may think of going short also as a trader, but I will advise buying if you have a view of 6-12 months at the current prices in TCS and Infosys both.
Sonia: I wanted your thought on Trident because the hope is that Target may now shift its business from Welspun India to Trident. Any thought on this name?
A: Again even if the order get shifted, you have to consider overall financial strength of each company and I am not too comfortable on the Trident going forward, but yes if these kind of momentum or if this kind of news which we see coming in, I don’t think that this is a right time to enter into Trident, you may continue to have the negative view on the Welspun because of this all episode of the Egyptian cotton fudging having done by the company and all that, but I won’t be taking a call on Trident merely that these orders are going to flow to the company.
Anuj: The other stock that’s on our radar is IGL, what a remarkable surge for a stock this week and even now up 4 percent?
A: That said, but in fact, if I compare IGL and MGL or maybe Mahanagar Gas Limited if you really wait to see the results also of MGL who will declare the results on the September 1, than the right comparison will really start, but I am seeing in fact a good momentum or maybe the value differential on a relative basis between both the companies, because if you see the promoters again the same 50 percent stake promoter of which 22.5 percent or 25 percent is GAIL, while in MGL it is the foreign promoter which is holding the other pie of 25 percent, so maybe on a fundamental basis I don’t think that Mahanagar Gas is in anyway inferior to IGL, but yes the momentum which we have been seeing definitely the Q1 numbers, which I have said while 3-4 days back when they came out with the numbers, they have gone into the quarterly trajectory of earnings per share (EPS) of Rs 10 plus which earlier used to be Rs 8 sub Rs 8.
Definitely, those fundamentals are there or they are seen intact, but the valuation or on a comparative basis with Mahanagar Gas, because both are identical. Maybe in terms of profitability and in fact the advantage with Mahanagar Gas as I said one of the promoter is foreign promoter and in fact if you see the equity basis also lower in case of Mahanagar Gas.
If I am seeing the IGL to see a rise of about maybe about Rs 100 having seen in this last 10 or 15 days, the reflection of that should come in Mahanagar Gas Limited also, so I am keeping positive view on the IGL, but worried with the current valuations or finding more attraction or more potential in Mahanagar Gas Limited than IGL.
Anuj: The other favourite stock of yours is Century Textiles and the company today said that they will be unlocking value and we all of course stay in Mumbai and in the same area where they have their land and looks like some work has started on that land?
A: The work has already completed at the Century Bhavan, where they have their registered office, the one building which we see is ready for leasing it out and that is about 2 lakh square feet area and of that, maybe 8 to 10 floors have already leased out that is number one, but the bigger parcel is of 45 acre on which the developable area could be anywhere close to 50 lakh square feet and if someone passes through that area they will find two big buildings. It is difficult to take a call whether it is two lakh square feet having developed or it is 5 lakh square feet having developed, but the net present value of the land, I don’t think that anybody can dispute it to be less than Rs 10,000 crore I am just referring the Worli parcel.
Come on the Kalyan land where the Century Rayon is located that’s about 700 acres, then come on the Pune land or maybe one or two other parcels, which they are all holding, so maybe Kalyan land could be valued at Rs 2,500 crore, I am just giving the net present value. I am not trying to calculate the realisable value on development of the premises and Century Worli that is the mill land, management has clearly said that they have no intention to sell a single square feet. Entire land will get developed and that will get leased out.
If you developed an area of say 30-35 lakh square feet also. If I knock off 10 acre land which is in dispute on a lease matter with Bombay Dyeing, even if I knocked that off and even they developed 35 lakh square feet, you will be requiring an amount of maybe of about Rs 2,000-2,500 crore over next 5-6 years and just imagine the lease rental which can start flowing in to the company and apart from that as I said 2 lakh square feet of the commercial premises has already been completed that will start yielding the results.
If you read the AGM proceedings having downloaded by the company on the site, it clearly says that monetisation process of the real estate will start, but apart from that their two core business one is cement and second is paper, both are in fact doing quite well, 33 million tonne cement capacity and two lakh tonne paper plant at Nainital, both are doing quite well apart from textile and all that. So you have seen positive views building up on the yielding assets also or maybe the working assets also and this real estate is additional sweetener, which I estimate the net present value closer to be as I stated off of all land put together at about Rs 15,000 crore.
Sonia: Shilpa Medicare, I know you track this one and I know that you liked it in the past, but this stock has just hit the roof in terms of a price. It is now at Rs 580, do you think it command a higher valuation?
A: You have been right that I have been liking this stock, but that was maybe 2 or 3 years back when it used to rule at price of around Rs 200 and since then it has really run up a lot and honestly if you ask me on the valuation parameter and looking to the momentum or the kind of run up which we have seen, I think that stock has hit to its valuation or it has run up slightly above its valuation on purely on fundamental, so I won’t be comfortable taking a buy call now in the stock. Obviously, one has to see the results, one has to analyse that which I have not yet gone through, but I won’t be keeping a buying view on the stock at the current price of Rs 600.
Anuj: My mind goes back to the note that you had written on Triveni Engineering, when it was at Rs 40 and you had predicted some really big numbers. Your thought on the Q1 numbers?
A: Again Q1 numbers are definitely good and in fact if you see the inventory, Triveni was holding the highest inventory, what they have produced, 84 percent was their inventory. So again one has to really see the amount of inventory having sold by them, but one thing which I would like to see from the results, that Triveni is always capitalising the offseason expenses and this time the offseason has started from April 1, so generally offseason expenses capitalisation we always see in Q2.
This kind of treatment is given by only 2 or 3 companies like Bajaj Hindusthan, Triveni Engineering. Though I am not comfortable with this kind of accounting treatment, because if you are selling the inventory, why should you capitalise the offseason expenses, but anyway I am not going by the argument, so one has to see the accounting treatment having given for the offseason expenses, if that has done, then the equal to earnings before interest, tax, depreciation and amortization (EBITDA) of Rs 102 crore is not looking great, but if it has not been given then the numbers are really very good, but yes ultimately as I said that 84 percent of the production is held as an inventory, so that is going to be reflecting into the Q1 numbers, but I am keeping a profit booking call on all the sugar stocks which I have been repeatedly saying for the last couple of weeks on the channel since the Dalmia Bharat Sugar have been announced, because from here on you will see the liquidation of the inventory with offsetting of the offseason expenses incurred by all the sugar mills, so even if the results are good my advice is to go for the profit booking in all the sugar stocks.