SP Tulsian of sptulsian.com does not see the divestment of Oil India with floor price to be any problem. He said in an interview to CNBC-TV18.
"Oil India can get corrected from Rs 560 to Rs 540-545. In that case government will try to play safe. The floor price might be fixed at Rs 520-525", he added.
Below is the edited transcript of his interview to CNBC-TV18
Q: We need a comment from you before we get more details on Dish TV and the stock impact that we are seeing right now?
A: Disappointment on face of it. As last time a forex gain reversal of Rs 76 crore in the Q2, which they reverse giving effect from 1st April 2011, in which the forex losses were not booked into the profit and loss (P&L).
So, logically if one knocks that off, Q2 had a loss of about Rs 21 crore. The earnings before interest, tax, depreciation, and amortisation (EBITDA) is very crucial. I was estimating it to be at about Rs 165 crore.
We need to watch for the EBITDA. Also if there are any exceptional to this net loss of about Rs 45 crore. Considering the revenue I don’t think that there is any kind of disappointment. However, looking to the net loss, definitely they are negative.
Q: The EBITDA for Dish TV has come in at around Rs 138 crore. So that would result in a margin picture of around 25 percent vis-à-vis 28 percent, which they had last time. The average revenue per user (ARPU) has come in at around Rs 160 compares to Rs 159 on a sequential basis.
A: Yes, in fact disappointment on the EBITDA only. It is down by about 27 percent. In fact I was calculating the EBITDA to be at about 29 percent, at Rs 165 crore. This is because Rs 32 crore was the interest in Q2 and now it is sub-30.
So, definitely things are good on that front. In fact EBITDA is very low at Rs 148 crore. It is down by about 27 crore on the estimated EBITDA which reconciles the higher net loss of about Rs 45 crore.
Q: It is currently at about Rs 73, where do you see the stock head from here? Where do you think the base will be build?
A: If one sees the chart or the price pattern of about three-four months, Dish TV has not breach the level of Rs 70. Once the breakup or the analysis of the result is made, probably Rs 70 is again seen to be the good support. Things will start building up with a positive bias on all the distribution stock because of digitization of the second phase.
I am not expecting the stock to correct below Rs 70. However, due to the hopes of better numbers and the way we have been seeing the local cable operators (LCO) and multi-system operator (MSO) stocks moving up lie DEN Network and Hathway Cable, people have been taking the bullish call on Dish TV. Still it is not likely to correct below Rs 70.
Q: What are your thoughts with regards to the divestment programme? Do you think Oil India and Steel Authority of India (SAIL) would successfully go through in FY13?
A: Obviously, the government has to now accelerate the process. I think most crucial for the government will be that of National Thermal Power Corporation (NTPC). The amount of about Rs 12,000-13,000 would get garnered by the government from offer for sale (OFS) of 9.5 percent in the company. However, I don’t know, nothing has really been heard of. SAIL divesting at the current valuations doesn’t look a logical move.
There shouldn’t be any kind of problem with Oil India. Not at the current rate because I expect the floor price to be anywhere between Rs 520-525. We have seen the steep corrections now started taking place in the oil marketing companies (OMCs).
Part of the profit booking has also been seen in the Oil and Natural Gas Corporation (ONGC) stocks. So, one doesn’t know when Oil India can get corrected from Rs 560 to Rs 540-545. In that case government will try to play safe. The floor price might be fixed at Rs 520-525. In that event I don’t think that selling or the divestment of Oil India with floor price should really be any problem.
Q: Most people are expecting a 25 bps rate cut this time around. Do you think it might perhaps evince a round of profit taking in the market?
A: I don’t think that profit booking will really come. We have about a week’s time. The Reserve Bank of India (RBIs) meet is next Tuesday. By then we will be seeing lot of corrections happening and Bank Nifty is the most crucial one.
So, I don’t think that the further correction in the Bank Nifty or maybe the rate sensitive stocks will be seen from hereon, if the 25 bps comes in from the RBI. That seems to be more or less factored in the price. So, no more correction or downside is expected from hereon.
Q: After hearing out what the management had to say would you buy Dish TV after the 6 percent dip that you saw or would you be cautious?
A: I will be using this as a buying opportunity. First one has rightly analysed the content cost. Q3 since it was back-loaded, I think the major portion got booked in Q3. However, some spillover will happen in Q4 also.
So, we don’t have that extraordinary or extreme increase in the content cost likely to happen in FY14. By the situation in Kolkata and Chennai, he said still people are operating on analog that is also a big dent.
So once the 31st March comes in for phase 2 in which 38-39 cities are covered that should again be a big kicker for the company. I think in respect to the additions of the new subscribers, they are on track. They expect to have a market share of 28-29 percent.
I see a downside of maybe about Rs 70, so maybe Rs 72 makes a good entry point with a view of couple of months or so.
Q: Would you buy Geometric Software after the 8 percent slide that you saw today? Do you think it will persist for a while or is this a good buying opportunity?
A: One has to wait for a while. Let other results be there then you can make a comparative analysis maybe Hexaware and Polaris when you have a choice. So till then one should really wait on the Geometric as well.
Q: Your view with regards to Hindustan Unilever's numbers and do you think that the stock would ever recover to those levels of around Rs 580 that we have seen in October-November 2012?
A: Actually if you crystallise all these numbers for FY14, the 50 bps will see an outgo of about Rs 150 crore extra. If you knock off the tax of 24 percent and take a net on the bottom-line it will bring down the profit after tax (PAT) by 3.5 percent. I don’t think that that kind of fall in the PAT on the expected FY14 performance will really get liked by the market.
So, considering the situation and even going forward on the Q4. If one continue to have the similar kind of performance for the company. Swiftly we have seen the price correction of having taken place by about Rs 100 on Rs 580.
It won’t be easy for the stock to recover. Definitely, the shift has happened in the other stocks. The whole process may take atleast tree to six months for the stocks to come again back on the radar of the hardcore investor. So taking all this into consideration maybe one can expect a price of Rs 515-520. The company will be out with their March quarter number till then. In regard to your expectations of Rs 580, I don’t think that that is likely to get seen in the whole of 2013.
Q: Two questions, first would you buy HUL at these levels and second how many more quarters do you think it would take for the management to get back to those volume growth figures of eight to nine percent?
A: Maybe a level of Rs 450-460 because when the stock has started correcting from Rs 585 we gave a level at that Rs 520-525. However, it has not really held onto those levels. So, now if you really take a call as an investor probably Rs 450-460 makes a sense.
Coming on the second question, I don’t think that is likely to happen. If you really see the personal care products, which has been giving them an earnings before interest and taxes (EBIT) margin of 28 percent plus has not been contributing to the growth.
Soap and detergent is more a commodity kind of things. Inspite of them, having a margin of about 12-13 percent. So, I have my doubts that the 8 percent growth can really get achieved even in the next quarter. So, one has to give a gap or maybe a time of atleast two quarters for the company to look for capturing the market share or maybe posting a growth of about eight percent.