Tulsian on stocks of the day, IT raid at Indiabulls

In an interview with CNBC-TV18, market expert SP Tulsian gave his stock picks for the day and shared his views on the IT raid at Indiabulls Housing.Below is the verbatim transcript of SP Tulsian's interview to Reema Tendulkar and Sonia Shenoy on CNBC-TV18. Reema: What if you made of the news about the government’s intent to increase kerosene prices per month by Rs 0.25, how much will this go in improving the financial situation of ONGC and therefore should it be a buy at current levels? A: I expressed my view in the morning on the same topic where I have said that I am not keeping a positive view on ONGC, because this kind of things will keep happening and even if you see the subsidy cut for next 8 months with Rs 0.25 that means you are increasing Rs 2 kerosene prices does not mean that it will be seen as a direct gain to the ONGC, because if you really see now on one hand ONGC has been saying that below USD 60 per barrel realisation is not viable for them, so government will definitely be putting lower burden of them and I have said in the morning categorically that if you see the crude prices for any reason moving up to USD 75 you will see the fresh burden of maybe another kind of levies will be seen imposed on the ONGC, maybe again in the form of the LPG subsidy or maybe the kerosene subsidy kind of thing, so in all the situation ONGC is not seen a beneficiary, so maybe a range of Rs 210-240 can be taken on the stock where it will keep trading in this range only, so those who are holding the stocks as an investor I will advise them to use this rally to exit and traders are advised not to go long in the stock. Reema: Did you take a look at the news on Kwality Dairy where KKR has committed to invest Rs 520 crore in the company? A: Again in the morning I have given my view on the stock that yes if you really ask me the two dairy stocks or maybe the milk processing and milk stocks, my preference goes with Heritage Foods and Kwality, because if you see the Kwality good promoter stake, balance sheet is not looking leveraged, if you see the interest to profit after tax (PAT) ratio also it is almost same and top line of over Rs 5,000 crore, but what we have been witnessing in case of this company that there is some paucity of the working capital and maybe some balancing capex requirement and if any fund comes from the KKR that will really be seen a good addition or maybe a good booster for margin expansion of this company and as such as I said that I have been keeping my positive view on Heritage Foods and Kwality amongst the dairy space. Reema: Generally we say you should buy in bad news that is where the opportunity lies. Indiabulls stocks whether it is Indiabulls Housing or real estate all taken a knock today on the back of this IT raids. Would you recommend a buy on these stocks on this development? A: There is a say that yes buy when the things are bad but at the right price and if you really see, two stocks one Indiabull Real Estate once it has moved forget this today’s income tax raids and all that which in my view is a very serious matter and unless until we know the outcome or maybe the findings which I have seen which we will not get to know at least for next one week or so but Indiabull Real Estate is definitely seen expensive. If I talk of the other tiny stocks like Store One and all that we have really seen a good amount of momentum play having taken place, so remain away from all these stocks. One stock comes to my mind that is Indiabull Housing. If you see the typical trading pattern or trading behaviour of that stock which moves in a range of Rs 671-730 or 735 in fact fortunately we have seen those kind of levels coming in yesterday. So, may be wait now and may be because if you see the fundamentals of Indiabull Housing Finance I don’t think that things will be any kind of hunky dory there. Things should be all in order and may be a level of Rs 675 makes a good entry point only for Indiabull Housing Finance. However, for all other stocks I will advise may be have patience or maybe having caution for the time being for taking buying call on any of them. Sonia: I also wanted to talk to you about one of the stocks of the day in the broader market which is Escorts. That stock is now doubled since the month of February so it has been a frantic run over there. We have spoken about this in the past where you believed that it has become expensive and Mahindra & Mahindra (M&M) could be better play but for someone who is perhaps already holding on to Escorts recommend profit booking or is this still a hold for the long-term? A: Definitely I will advise him to go for the profit booking and let us not forget the kind of tractor sales which we have seen for the month of May and June are now not likely to get repeated for July, August and September and that will be the case with both Escorts as well as M&M. Maybe the better sales numbers of tractors will be seen only in the month of November or may be starting October. So, you will be having two or three lull months. Sometime what happens because market extrapolates a present trend and I am not saying that the experts are not available with this trend but people think that the same kind of tractor sales will continue? That will be a wrong assumption or that will be call to take on the stock. If you really see on the earning multiplies also the stock has run-up quite a lot. So, yes definitely I will advise profit booking in Escorts at the current level. Sonia: Your view on ITI. Any thoughts on how to approach that one or would you think it is just a trader’s move here? A: It is a pure trader’s move because if you see their financial performance of ITI, HMP and Madras Fertiliser, three are such PSUs which are just the money guzzler or maybe the black hole, whatever financial assistance has been provided by the government in the last 4-5 years, you have not seen any kind of recovery happening. So, whenever because ITI is a very low public float and whenever you see these kind of things happening, it is controlled by few hands and they make the prices to move up as per their wish and fancies. Sonia: What about you? Last quarter was a good one for Exide. It actually saw a revenue growth after many quarters of a degrowth, and this quarter, as Reema was saying things are expected to continue on the upside. Would you buy Exide at these levels? A: In a comparative value basis, if you take a call with Amara Raja Batteries, still it is seen cheaper because it is ruling at a PE multiple of maybe about 18. Again, Q1 numbers are looking good and in fact, what we have seen a shift happening between these two battery makers because Amara Raja has been lying low for last three months or maybe post their Q4 numbers which were seen to be flat and since then people have been taking a shift into the Exide working. And if you go by the insurance arms also, the stake held by the company in insurance arms are also making the stock to go up or revalue. So, overall, on the core business and as well as even if you go by the inverter business because of the scorching heat we are seeing good amount of performance to be seen from that segment also which contributes about 23-24 percent to the total topline to the company. So, overall yes, positive view and on the valuation front, still after Amara Raja having corrected and having remaining subdued or in a narrow range for the last couple of months, Exide is looking cheaper by maybe about 300 basis points on a PE multiple basis at about 18 times. Sonia: The 15 percent divestment, if you go by the market cap, it works out to about Rs 2,100 crore but the government is looking to raise just about Rs 1,700 crore through this so there could be a discount that we are talking about here. How would you read into this because NBCC so far has been one of the best performing stocks in the last fortnight to month and now it is down about 11 percent? A: Government is smart and practical, they understand that the true value of the stock is not at the price at which it has been ruling but sometimes I wonder, in fact I have seen with respect to all my co-experts, many of the people have been giving buy call on the stock for last couple of days when it has been seeing ruling at its highest. These prices are after split which the company has gone ahead in this last six months from Rs 10 to Rs 2. So, government is practical if they take the valuation of the current price or even if they would have taken the valuation of yesterday’s price, they would have fallen flat on the face because we all know that 90 percent is held by the government and 10 percent is just the float. Sometimes we get too much carried away by the government contracts and start calling this as developer, as a land holder or a as a real estate company, they are merely a contractor and these kind of projections we have seen happening in case of many other companies as well. I agree that they are PSU so they are blessed with contracts being awarded in the daily reason and all that but they are contractor and they will remain as a contractor which profits will get reflected. So, maybe once the float comes in, in fact it reminds of the MMTC and STC kind of things when MMTC has risen to a price of Rs 45,000 six to seven years back. So, this kind of frenzy cannot really last if it is largely operating on the low float. So, I am not keeping a positive bias. The price which the government is calculating of mobilising Rs 1,700-1,800 crore, you make a reverse calculation, 15 percent as Rs 1,700 so that seems to be the realistic valuation for NBCC. Reema: Anything here? A: I have been keeping my positive stance on the Chennai Petro when it was ruling at around Rs 190 or maybe sub Rs 200 about maybe couple of weeks back, because if you really see the kind of performance of the refinery one is with a larger size of 11.5 million tonne is able to process all kind of crude is a very high complex and the other one also the tiny one is also and once you have the pipeline getting erected which will be operationalised in 2017, you will be seeing a positive working seem to be in the effect of the company and if you go by the earning multiple, the only problem with the Chennai Petro is that they are not in the distribution, but other front also this stock is available at a PE multiple of closer to Rs 5 while the other OMCs like HP, BP they are all ruling at a PE multiple of closer to Rs 10-11, so yes on the fundamental basis though the stock has risen quite a lot, but still maybe with a view of a longer horizon of six months the stock has upside potential. Sonia: Tata Steel is now at Rs 360 almost, what a phenomenal run has been for this one. Do you expect more upsides here? A: Yesterday, I have expressed my view that I don’t have any positive view on the stock whether they exit from the remaining UK business or they don’t exit UK business, but the traders they seems to have come in the grip of the strong hands where they again making the stock to move. You have not seen any kind of positive news coming in, 3-4 days back when there was news that they will not be able to selling or they are not finding any buyer the stock has corrected, then you are getting the news of joint venture being taking place with one or two global partners like Thyssenkrupp and all, but I don’t find any substance in that because neither that is giving them any kind of cash flow upfront for exiting from those stocks nor you are taking any call of improvement in their working, so these are just dancing to the tunes of the developments and maybe the strong hands are doing that, but purely on a fundamental basis because if you take a call on the Q1 numbers, I think all the steel companies are going to post excellent Q1 numbers whether you talk of JSW Steel or Steel Authority of India (SAIL) or for that matter, even Jindal Steel and Power for their steel segments they may not be able to show good performance for their power division, but what will happen with Tata Steel definitely they will show the good numbers from the Indian operations, but I think on a consolidated basis don’t expect any kind of respite or even from their South Asian operations don’t expect any respite to come in from their global operations, so I am keeping muted view on the Tata Steel purely from a fundamental point of view, but trading is totally a different ballgame. Sonia: DCB how you would approach it ahead of numbers it is down 5 percent? A: Q4 numbers were very good I don’t see any reason why the Q1 numbers will be disappointed, but the kind of profit booking which we have seen ahead of the numbers, maybe because seen to be more as a profit booking, so those who are cautious wait for the results to come, those who have little courage they can pre-empt and look to buy at a level of maybe about Rs 96-97.