SP Tulsian of sptulsian.com in an interview to CNBC-TV18 tells us why one should not buy fresh into D-Mart at current levels and wait for the levels of Rs 525-550 for investing for the longer term despite the growth potentials for the next three years.
According to him, the fair value for the stock is around those levels.
He also explains why it makes sense to look at tyre stocks like TVS Srichakra and Kesoram Industries that have not participated in the rally compared to others. So, be choosy and selective.
Below is the transcript of SP Tulsian's interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Anuj: What to do with Avenue Supermarts now because one thought Rs 500-550 would be a great listing but Rs 600 was of course phenomenal and now, as we speak, it is almost at Rs 630-640.
A: We have discussed this in the morning that firstly if you are a long-term investor then this is a clear hold because the kind of growth which the company is going to be showing for the next three years, I don’t have any doubts. In the morning I said that compounded annual growth rate (CAGR) of about 20 percent on topline and 25 percent on the bottomline. And if you have that compounding effect, probably you are seeing doubling of the bottomline of the company in the next maybe three years or so, number one.
Number two, if you are taking a call as a short-term investor, then definitely this is the profit booking at which it will be advised. Because if you take a call on the first day of listing, always the grey market activity which happens in a very big way are going to get squared off today. The costing to the high networth individual (HNI), those who have applied in the HNI category, to them the interest cost has been at about 150. Now all the trades (creates) which have happened between Rs 250 and Rs 275 as a grey market premium will all get squared off, maybe some of them wanting to have a higher close.
I will not be surprised to see the share correcting again maybe in the next week to 10 days or maybe in the month of April at around Rs 600. So, this is a call that no fresh buying is advised now at the current level. The valuations are definitely looking stretched in spite of considering all the future growth potential of the company for next three years. Those who have got the allotment and those who are holding it and if they have a long-term view, they can remain invested. But the fair value which I will assign to the company will be somewhere at around Rs 525-550 because if you take a call on the market cap now at about Rs 600 also, the market cap works out at about Rs 36,000-37,000 crore with enterprise value (EV) is seen at about, add about Rs 1,000-1,500 crore to that, about Rs 38,000-39,000 crore.
So anywhere between Rs 30,000 crore and Rs 40,000 crore with either market cap or with EV are seen literally quite stretched.
Maybe on a comparative basis, if I take call, then probably Future Retail will start looking attractive to the street going forward because on a topline of about Rs 1,000 crore per month against Future Retail having a topline of about maybe Rs 1,200-1,300 crore per month will definitely also start seeing catch up on a relative basis when compared with D-Mart. So, I am not saying that D-Mart is not a good stock but not at a price above Rs 600 and those who want to buy it with a long-term view, definitely I will advise them to look at a level of Rs 550 only, not even at Rs 600 as well.
Sonia: Come in on the relentless run that we have seen here. Too expensive now or do you think there is still some scope to make money in any of the tyre names?
A: The kind of run up which we have seen in few of these tyre stocks, you have to be very selective and actually maybe a couple of stocks which comes to my mind which have not seen the participation having taken place. One is the TVS Srichakra because that stock has corrected, it is still ruling at about Rs 1,000 from its previous high which we have seen maybe about 3-4 months back only because the Q3 numbers were a little dull for the company and second is the Kesoram Industries because if you see, Kesoram, they also have Odisha tyre plant. So, probably these two stock have not really seen having participated thought there are very few tyre stocks available.
But if you take a call on all of them, the leading one like Ceat, MRF, Apollo Tyres, JK Tyres, Balkrishna Industries, probably all of them have seen having participated in this rally except these two tyre stocks which I have said of TVS Srichakra and Kesoram Industries.
So, I will be a little choosy and selective or maybe a little cautious in taking a call because I have always seen the trading pattern of these tyre stocks. This time, it may be having hit the new highs, but generally, this swiftly gets corrected also by about 6-8 percent and moving in a broad range of about maybe 6-8 percent or 8-10 percent from the prevailing price.
Anuj: Your thoughts on Grasim? You have been recommending to book profit on Idea Cellular, that call has played out, but do you think the market is having a bit of a sigh of relief right now that promoters will not be putting in incremental money, Grasim will not be used for example, to put in money? We have seen decent gains in Grasim over the last couple of days.
A: There has been a statement from the management about a couple of weeks back that no money will go from Grasim. And now, we have seen broadly the deals having taken place between Vodafone and Idea, the purchase of about 3,800 crore shares also, no reference of that having gone from Grasim. That is a big relief because next acquisition is going to be seen at Rs 130 over the next four years and market is taking that as a foregone conclusion that it may not materialise where Birla Group may not be seeing it acquiring any further stake in the company within the next four years or so.
So, that is a big relief and now, if you see, Aditya Birla Nuvo, the proceedings of convening extraordinary general meeting (EGM) has already started. And probably the merger will happen in the next maybe 45 days or so. And that will be seen quite positive because if you take the situation now on the Grasim alone, they are holding the 61 percent stake in UltraTech Cement. UltraTech has risen to about Rs 4,000 plus. Actually in my view, that has not seen having reflected in the value also because 0.25 shares effectively, one Grasim share is holding 0.25 shares of UltraTech Cement.
So, that alone constitutes or gives a valuation of about Rs 1,000 per share. So, I am keeping a positive stance because after this news is behind us that no money will go to telecom venture going forward, this will be seen quite positive, ahead of the merger of Aditya Birla Nuvo with Grasim as well.
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