Tulsian's take on Welspun India, NTPC, Castrol & others

In an interview to CNBC-TV18 SP Tulsian of sptulsian.com shares why he feels Welspun India shares could hit lower circuit over next few trading sessions and why he prefers staying away from all the public sector units stocks like NTPC, Coal India, Engineers India, among others.He also shared his views on stocks like Castrol India, Motherson Sumi Systems, Escorts, Biocon, Sun TV, Zee Entertainment etc.  Below is the verbatim transcript of SP Tulsian's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: First a word on Welspun India, if you have tracked the story and do you see maybe one more down circuit or more downtick for the stock from here?A: If you take a call on the company’s position, they have all been thriving on the US market and if you see they are the largest manufacturer of home furnishing, bed sheets and towels and all that, largest in Asia and have a significant US market and if you see they have tie up with JC Penney, Target, Walmart and all sort of things having a very good presence in US, but suppose if you just go by the news flow, I am not saying whether the wrong has been done by the company or it could be just a gimmick by the Target also not to go ahead with because of the low offtake seen in US, so maybe that Egyptian cotton has not been used.Suppose if I just first accept that the company has done something wrong then that is seen very bad for the company, because if you take a call the company gave a target of USD 2 billion by 2020. Right now they have sub USD 1 billion or in fact I would say that they have a top line of close to Rs 6,000 crore and they are looking for a top line of closer to about Rs 14,000 crore in next 4 years and that looks really unachievable if this kind of things go on further.Tomorrow, you do not know maybe JC Penney, maybe Walmart they also may come out with a similar kind of inspection, though the company management have said they have appointed an independent auditor to verify the facts, but yes in the near term things will really be seen quite negative and I won’t be surprised to see maybe couple of at least lower circuits, maybe tomorrow it will hit 20 percent, because these type of things have been happening. We have seen that thing happening in case of Mandhana Industries, we do not know what was the real reason for that, but yes apart from because whatever damage has happened to the company, but we need a caution in case of other stocks also like Indo Count, if you see Indo Count and Welspun both have been going neck to neck in terms of the margins and all that and both have been thriving on the overseas orders, so maybe at least I will warn the other shareholders invested in the other company at least to be cautious, but yes as far as Welspun is concerned, I won’t be surprised to see at least two couple of lower circuit seen happening maybe 20 percent tomorrow and then we will see the lower circuit getting revised to 10 percent, then maybe thereafter one more circuit at least two circuits seen certain on the stock looking to the current situation, which we have gathered.Anuj: You have tracked NTPC is this a stock that you would want to buy at Rs 164?A: I won’t be buying it because if you really see the kind of growth which we have been seeing from the company, in spite of the good capacity additions which we have been seeing happening, I am not too convinced because those things are not reflected into the profitability of the company in spite of having the generation capacity of closer to about 45,000 megawatt, I don’t think that you need the trickling kind of increase in the profitability, so I won’t be taking an investment call as such in fact, I expressed my view earlier also that I have been keeping myself view away from all the PSU banking stocks maybe for the OMCs except for three OMCs, I am keeping myself away from all the PSU stocks whether you talk of NTPC, Coal India or maybe the Engineers India kind of stocks.Anuj: What happened here? Castrol India 4 percent higher. Is this a case of shorts getting trapped because of that expectation of blocked deals and the foreign promoters selling? Is it just that or is there something more to this surge today?A: That is the most likely. That is the most logical interpretation because in spite of the Q1 numbers, we have not seen the prices sustaining, but yes, the technical factors nowadays are playing a very big role. The case in points are Bharat Financial Inclusion,Biocon, so same thing is seen here also in case of Castrol. Maybe these prices or this rally may not be seen sustaining post the expiry. And maybe from Friday onwards we will again start seeing the profit booking.Anuj: Your thoughts on Indraprastha Gas? It has been a rank outperformer, linear chart for the last 3-6 months. A: What I have liked about the company after seeing the Q1 numbers that they have in fact broken a trajectory, till all along they have been in that sub Rs 30 earnings per share (EPS) kind of things. If you see, for all the four quarters, EPS has been closer at about Rs 7-8. For the first time they have broken this kind of barrier and have seen the EPS getting posted of closer to about Rs 11 and that same pace is likely to be maintained. I do not see much growth seen coming in the subsequent quarter, but even if you take a growth of about a couple of percentage also, the EPS can be at about Rs 45 or so. And traditionally this stock has been enjoying the higher price-earnings ratio (P/E) multiple. So, maybe on the expected earnings of about Rs 45 for FY17, if you take the share is ruling at about 15-16 P/E multiple, so you have the case for P/E expansion and the confidence of extrapolating the Q1 numbers. There is no reason for taking the FY16 numbers. So just extrapolate the Q1 numbers what the company has posted, because once you see the vehicles having migrated on the natural gas, then do not see them reversing back and they have the share of Delhi and all sort of things where the situation is seen getting more enlarged on gas going forward. So, yes, I am keeping a positive view. Maybe a case of P/E expansion by a couple of percentage which can make the shares to move to a level of about Rs 760-770.Sonia: The other stock I wanted to discuss is Sun TV. It is now down almost 5 percent. A quick comment on Sun TV. This time, add revenues have fallen, margins have fallen, but this has been a big wealth creator in the past at least for a brief period, would you buy this stock at this price of Rs 450?A: If you see the Q1 numbers, I do not think there was any excitement. And honestly, if you ask me, I do not know the reason of this sudden spurt, why the stock has moved so much. And if you have not seen the growth coming in, on a relative basis, if you compare it with Zee Entertainment then you find the stock to be quite cheap. But we keep getting the news also that probably the promoters are looking to exit from the company. If that happens, then that could really be a big trigger, but I do not know what are the possibilities of that. But looking to pure Q1 numbers, I do not think that this stock deserves a buy call at Rs 450. And what happens generally in case of Sun TV, that whenever you see a big upsurge coming in, the prices are not getting sustained at the upper level and we see the profit booking coming in back. So maybe a level of Rs 400-410 where it can correct to in the next month or so, there one can give a thought otherwise not at the current level.Anuj: Rs 3,000 crore for Motherson Sumi Systems. The stock is reacting maybe because of dilution fears or the price. Your thoughts on this? I know your preferred pick is Bharat Forge. But on Motherson, how will you approach it? A: Company has already announced this plan, maybe about a couple of weeks back, they have announced the plan of raising Rs 3,500 crore if I am not mistaken along with Sumitomo where they have announced that those plants also. So, this is in continuation to comply with those things, the merchant bankers have got appointed. But I am in fact keeping the positive view on Motherson Sumi as well because if they have the plans of USD 18 billion turnover by 2020 and the kind of inorganic growth plans also lined up by them, they do need that kind of money and with the Sumitomo placement and with this Rs 3,500 crore preferential allotment or qualified institutional placement (QIP), the things are looking positive going ahead.Anuj: Phenomenal stock Biocon this year its double I think this year or getting there. At Rs 885 what’s the call?A: A while back I have said that maybe these are the expiry this thing and I am not saying that the fundamentals are not in place, but it has ran much beyond the fundamental and I won’t see these kind of moves happening till expiry. Maybe, in the next series definitely we will the profit booking and even in the next three days I won’t be surprised to see the correction also, a fall of also Rs 25-30, because a while back I have said that two stocks Bharat Financial Inclusion and Biocon both are going to see extreme volatility in the next 3 days because purely on the technical factors showing huge upsurge and then maybe correcting in the couple of hours also, which will be difficult to predict by about Rs 25-30, so keep a watch for the these both the stocks maybe stocks for the high risk high return kind of traders till expiry.Anuj: This is coming out after years of underperformance do you see more gains forEscorts?A: I have been maintaining my view that the stock looks fully price, I have heard Nikhil saying giving the plans, but those plans are all lined up for next 3 or 4 years and he has rightly said that they have regained the third position, but that should be sustained and maintained and if you really see the tractor sales for next couple of months is going to be quite dull.We will get to know the sales figure for the month of August which will not be too happy, market will not receive it well, but again come October-November because you can say that tractor sales are all seasonal in May, June, July you get the best sales number and then again October, November and December ahead of the rabi crop you get the best sales numbers. So maybe the valuation tag has to be given to all the stocks considering all the prospects. Considering the present price at which it has been ruling if you really ask me, I may find it bit overvalued and I won’t call it as a reasonably price I may find it little bit overvalued at the current level.