Why pharma stocks can rally in July: SP Tulsian

In an interview with CNBC-TV18, market expert, SP Tulsian gave his stock picks and told why he has a positive stance on all pharma stocks for this coming month.Below is the verbatim transcript of SP Tulsian's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18. Anuj: The stock of the moment right now is Lupin, its surging up about 4 percent. In general we have seen quite a bit of buying in pharma names of late, what you make of that and your call on Lupin in particular? A: If you recall on last week on Friday, I have given my view that probably for July series you will be seeing pharma as a big theme and at that time I have recommended Lupin along with the Glenmark and Aurobindo Pharma and I continue to have the same view as I have been keeping positive view on PSU bank with the start of this June series which we have seen having all PSU banks have risen about 20 percent, I am expecting at least maybe 6-8 percent rise in the big pharma in the July series and one can include the Lupin, Aurobindo Pharma, Glenmark, Wockhardt and Strides Shasun in that category, so yes I have a positive view building up on the pharma stocks partly because they are all undervalued if you see Glenmark having corrected by Rs 100 for no reason in this maybe last 3-4 weeks. Similar is the case with Lupin, similar is the case with Aurobindo Pharma so maybe the technical bounce back, short covering and the expectation of good Q1 numbers which I am expecting all these big companies to post good numbers and one can add the name of Dr Reddy’s also in that category. I am keeping my little caution on Cipla because we have seen the Q4 numbers, they have been big disappointment with big concerns seen on the working capital management, so I will be bit cautious but even technical upsurge can be seen in Cipla also so keeping positive view on all pharma stocks for July series from here on. Anuj: We have seen big move today in Adani Group stocks, you like some of them, but at current levels Adani Enterprises, Adani Power or Adani Ports is there anything that you would pick at current levels? A: I like two stocks from the Adani space, I don’t like two stocks which are Adani Power and Adani Enterprise because of the confusion and because of the debt. In Adani Power you see the huge debt, huge kind of higher realisations which they are unable to get, but two stock which I really like is one is Adani Ports and second is Adani Transmission because if you really see the growth, the way they have been expanding in the port on eastern and western coast, sometimes we raise concerns on the rising debt in the books of the company that is of Adani Ports, but I am not concern if it is supplemented by the earnings assets which you have all been creating in the books of the company and having such a future and good growing prospects for that business. Coming on Adani Transmission if you really see T&D has been my focus and that is the core growth sector which will really be seeing a good growth and based on that theme in fact, I have been giving the buy call on the transformer makers for the last maybe one month or so or maybe last couple of months or so. So I keep my positive view on Adani Port and Adani Transmission. I agree that in the past 2-3 months we have not seen both the stocks performing, but if you have a long term view then one can take a view on both the stocks and on other two stocks I don’t have any positive view you say that I have a neutral to negative view. Anuj: Himadri Chemicals you recommended on June 9 at Rs 23 it’s now at Rs 34 almost a 50 percent surge in a matter of 10 trading days, time to book profit or would you stay invested? A: If you get a profit of 50 percent in less than maybe couple of weeks then definitely time to book profit, but if you want to have a medium term view then one can hold for a time horizon of 6 months, because there is a going to be a turnaround and in fact if you really see the kind of business they have the integrated plants, coal tars which is used in the aluminium industry, when I gave a buy call at that time I recommended and in fact on a lighter side I can say that this recommendation was more out of vengeance because the cats and dogs were used for few words by many of the experts on that day that these stocks are all moving up, because without realising the potential if you really ask me I won’t be surprised to see a level of Rs 45-50 also in next one year or so. The point is that if you are getting a profit of 50 percent there is no harm in booking that profit because you probably may get this stock again at Rs 30 because when there is frenzy everyone rush to buy it, because you have lot many ideas available in the midcap and small cap space, so both the options are open either book or hold for six months. Sonia: I wanted to discuss some of the cement stocks with you. Today Deccan Cement is at a new high, it’s almost inching towards a Rs 1,000 mark. I remember you recommended this stock six months ago and you said that it could go Rs 750 its now almost a Rs 1,000. Do you think there is more upside here? A: I recommended again about 10 days back when I gave a target of Rs 1,000 because the kind of performance which we will be seeing from the company, because I have been keeping my positive stance on all the Andhra and Telangana based cement stocks and if you go by the enterprise value (EV) basis it is ruling at a EV to earnings before interest, taxes, depreciation, and amortization (EBITDA) of maybe about USD 55 or maybe USD 60 per tonne and I won’t be surprised to see the company posting an EPS of closer to about Rs 100. I won’t be surprised to see them exceeding Rs 100 also largely because of the operating leverages, because of the higher capacity utilisation and better realisation seen in the Andhra, Telangana, Karnataka pockets, so yes I continue to have my positive view, but as I said that Rs 1,000 was the target which it has reached, so maybe fresh entry will not be recommended now in the stock at the current price because there are comparable peers available at a much lower valuations where I will rather be more positive, but those who have bought it earlier I will advise them to hold for maybe a gain of further 15 percent from here on in may be next 30-45 days. Anuj: Do you have a view on Surya Roshni that stock is up 7 percent as we speak. A: If they sell their lighting business because whatever value they have been getting and I think that they have a debt of closer to about maybe Rs 1,000 crore or so. So one has to really understand once they will sell the lighting business then I don’t think that there are any traction will be seen in the steel business, but if they are able to sell their lighting business for Rs 3,000 crore that will be well received by the market. Anuj: I need your opinion on ITC and in fact how would you compare it to the rest of FMCG pack because it has been a phenomenal run for ITC. It has been one of the leadership stocks for market. Till about 4-5 months back it was almost a dead stock? A: If you really want to play within a range then probably ITC could be and this is more as a tactical stock whenever you want to enter the stocks when you have no other ideas available at a level of Rs 330-335 then probably that is the right level to enter, but when you have the other ideas available into the same whether you talk of FMCG or you talk of agri space because if you really see the cigarette business alone is carrying the entire load of the company on its shoulder, because you cannot expect the tobacco business to keep continue showing the big margin of about 68-69 percent, while their all other division whether you talk of hotel, paperboard, agri they are not doing so well. They have just been laggard, because if you want to outperform in this market, I don’t think that there is any compulsion to buy ITC that to now ruling at such a high level. Sonia: Tomorrow there is some action in the primary market Quess Corp that IPO open and the company as we know is looking to raise Rs 400 crore, what would your recommendation be to retail investors for this one. A: If I go into the detail then probably it will take a very long time, but I compare it with Teamlease the performance of this company has been much better and since the time of its acquisition about 7-8 years back when Thomas Cook has acquired with the organic and inorganic route the company’s bottom line has grew by about 7 times and now the price one may argue that the prices are looking little bit expensive or on the higher side, but this IPO is looking quite good because only 10 percent dilution is there, only 10 percent allocation has been made for retail investors and as I said that the kind of growth which the company has posted as I said 7 times growth in the bottom line of the company in last 7-8 years, I think the IPO looks good and one can go for making the application in the issue.