Here are fundamental trading ideas from SP Tulsian

SP Tulsian

CEO | sptulsian.com

• Here are SP Tulsian's top trading ideas

• Here are fundamental trading ideas from SP Tulsian

• Here are SP Tulsian's top trading ideas

In an interview to CNBC-TV18's Latha Venkatesh, and Surabhi Upadhyay, SP Tulsian of sptulsian.com shared his readings and outlook on market and specific stocks and sectors.

Below is the verbatim transcript of the interview.

Surabhi: I first want to start off with the steel numbers. Now JSW Steel like Tata Steel people can argue and nit-pick that the EBITDA per tonne number was not as much as some analysts were expecting. Do you think this can put a dent on the rally in the stock price or will it just continue?

A: No, I don't think that – that should be taken just EBITDA per tonne. Because if you really take the situation for JSW Steel two points comes in reply to that. First is the integrated operation. The company which they have acquired that Dolvi from the Mittals that is now seen improving their performance and second is the product mix. Sometimes in the coated products they have maybe the lower margins because of the rising zinc prices and because of the long contracts they had with the buyers of their products and in that case they have to comprise. We all know that the zinc prices have seen on an uptrend trend and sometimes there is a lag effect, so I don't think that should really be the situation of analysing because if you really take the call on the standalone number of JSW Steel they have come out extremely well.

If I just take the profits before tax (PBT) straight without going into coking coal or maybe the other this thing the PBT has risen to Rs 1,285 crore from Rs 607 crore. Sometimes, I don’t understand these all estimates which just go haywire because you should focus on the financial numbers having posted by the company. Those numbers have really come out very well on a standalone basis.

On a sequential basis, profits after tax (PAT) has doubled from Rs 419 crore to Rs 845 crore. If you take a consolidated one as I said that there is no improvement on the consolidated one on the bottom line, but standalone numbers are excellent and that pertains largely for their Bellary unit and because of this product mix sometimes you have the lower EBITDA per tonne.

Latha: Bharti Airtel you think there was anything that investor should take note of in the numbers?

A: I don't think that there is any kind of, again it is a pleasure of the lower estimates and meeting those estimates. If you really take the situation even on a sequential basis, I don’t know what is there to really cheer in these numbers. Sometimes, we say that okay the numbers have met the estimates, but the estimates are not reliable or having any kind of relevance. Come on the Indian operations again India EBIT has seen a fall from Rs 1,260 to Rs 1,140 crore on a sequential basis. That clearly indicates that the pressure is seen continuing.

Yes, Africa operations have shown traction in the number from Rs 500 crore to Rs 850 crore, but can that really justify? So yes, you can say that Bharti Airtel has shown a neutral kind of performance because even if you take the EBITDA, because of this if the African operations would not have shown a rise of Rs 300 core because of that the EBITDA is seen constant at about Rs 8,000 crore again Rs 7,800 crore on the sequential basis in the previous quarter.

Latha: What is your long term bet?

A: The stock for the day is Shriram Pistons & Rings. Let me first give you the background that this company is making pistons, piston rings, piston pins, and engine valves, and they are catering to practically all the automobiles whether you talk of passenger vehicle, commercial vehicle, two wheelers, three wheelers, or tractors. In fact they have all the clientele list; I don't need to repeat but still if I just take the prominent names, they are Bajaj Auto, Hero MotoCorp, Ford, TVS Motors, Escorts, JLR, Nissan, BMW, Maruti Suzuki, and all; they are catering practically to all. Company is having two plants having technical collaborations for various products with four global players, one from Germany, and three from Japan.

Now let me come on the financial performance of the company. The company came out with their Q2 numbers, maybe couple of days back, and the company’s first half income has been at Rs 880 crore against Rs 827 crore in the same period of previous year. Profit before tax (PBT) has been at Rs 96 crore against Rs 84 crore. So if you see, the turnover has increased by about maybe 3-4 percent, but the PBT has increased by about 20-22 percent; that means it is a clear case of huge margin expansion and because of that the profit after tax (PAT) has been placed at about Rs 64 crore against Rs 59 crore because of the higher tax liability translating into an EPS of Rs 28 plus against Rs 26 plus over the same period of the previous year i.e. for first half (H1). So one can easily expect that the company is likely to post an EPS of closer to about Rs 60 for FY18.

This stock is only listed on the NSE and let me just draw one attention to all the viewers that this is a very thinly traded stock, not because the company has having lower equity base or maybe the company is having higher promoter stake. Company is having an equity base of Rs 22 crore with a face value of Rs 10 of which the promoter stake is just at 48 percent. However, as I said, those two foreign collaborators which have been providing technology, are holding 41 percent stake in the company, both of them. So 48 percent promoter, and 41 percent stake held by these two promoters makes about 89 percent.

Now 11 percent having remained, are held 4 percent by LIC and National Insurance Company is holding 6.4 percent. So that adds up to about 10 percent. So 99 percent of the stakes are held by promoter, two technical collaborators, and two insurance companies, leaving just 1 percent float in the market. However, that also constitutes about over 2 lakh shares and those who want to buy, maybe 200-400 shares, they can easily buy within the range because if you really see the pricing pattern, it has been moving in a range of about Rs 2,000 or maybe Rs 1,800 to Rs 2,100. So I don’t think that there should be any kind of problem.

However, let me just remind when we have recommended the stocks like Harita Seatings, and all that, even all those stocks had a trading volume of about 1,000 shares which have risen to maybe about 15,000-10,000 over a period of time giving a gain of 200-300 percent in the last couple of years. So extremely sound company, extremely robust product and the huge growth potential in terms of topline and in terms of bottomline. So taking that into account, share now ruling at Rs 2,025, can be bought with a target of Rs 2,430 in the next six months or so.