Apr 19, 2012 03:58 PM IST | Source: CNBC-TV18

SP Tulsian analyses IGL, Exide, GVK & Reliance

SP Tulsian of analyses stocks like IGL, Exide, GVK, Reliance, Asahi India Glass, Kalyani Steel and Nagarjuna Construction.

In an interview to CNBC-TV18, SP Tulsian of gets stock specific. He analyses stocks like IGL, Exide, GVK, Reliance, Asahi India Glass, Kalyani Steel and Nagarjuna Construction and talks about various triggers which can move these scrips up or down.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: GVK had a big move. Do you expect that Hancock deal to happen? Was that the reason for the move or do you expect any other trigger for that stock now?

A: Honestly it is not very clear and difficult to say. Sometimes when I wonder about the capex plan of the company being initiated including the increasing stake in the domestic airports, the Hancock deal, acquisitions of so many other assets and coal mines etc. Probably sometimes you get worried as to how they can really do it and go ahead with comfort in times to come when the balance sheet is already leveraged, so it is very difficult to say. If you see the price behavior of GVK along with GMR Infra, both have been ruling firm. I am unable to take a call as to whether the rise in GVK is likely to get sustained on hopes of a Hancock deal going through.

Q: What about Exide which came off yesterday on fears of product price cuts? Do you expect it to go even lower?

A: No, I don’t think so. One has to keep an eye on the results on April 30. In my view this is just a calculated move on the part of the company. They have gone for a price cut of about up to 17%, but that seems to be more to grab market share. I don’t think that will really hamper their operating profit margin to a great extent. I am not too worried about that. It could just be a sentimental effect.

If you notice the price pattern of the company in these last six quarters they have been giving a volatile trend ahead of the results and after the results because the results have not been inconsistent because of the raw material cost pressures which we have been witnessing on the working of the company in the last six quarters or so.

Q: Big day for IGL today. The stock was actually strong yesterday. Is the market sensing which way things are blowing in terms of what the legal reaction maybe?

A: It is most likely that IGL is going to get relief. Firstly, on the retrospective application, from FY08 it seems to be a foregone conclusion that that relief is going to come in favour of the company because the hearing is today. I don’t know about the stay on the reduction in the carriage fee prospectively, that may or may not come, because that has very dim chances.

But yes, the retrospective application of the reduced rate is probably seen as a foregone conclusion that that relief is going to come. In anticipation of that and otherwise also if you see this stock is heavily short and may have been under-owned by many people. So we could see a rise of about Rs 15-20 from hereon.

Q: One of the stocks that you have picked for us today is Asahi India Glass. Take us through why you like it?

A: In the last one week if you see the entire auto ancillary or rather the whole sector is coming into focus. Subros, Jai Bharat Maruti, Wheels India, ZF Steering, all these stocks and even Saint-Gobain though that maybe on the delisting talks. I thought this is the best pick amongst the auto ancillary sector. This is the largest automotive and float glass maker in the country where 55% stake is held by three promoters - 11% by Maruti, 22.22% by the Asahi Japan who are the technical collaborators and remaining about 22% by the Labroo family.

If you see the shareholding pattern about 35% of the remaining 45% is held by HNIs. If you see in that breakup five or six HNIs are holding 20-22% stake in the company. Coming on the market share, they have 27% market share in float glass and 77% of the passenger cars are controlled by this company and they have 11 plants catering to practically each passenger car maker in the country.

If you see their financial performance, for the first nine months it has not been very great but at least the company has not been a cash loser. It made a cash profit of close to about Rs 60 crore on a topline of about Rs 1,250 crore for the first nine months while the cash profit in FY11 was close to about Rs 145-150 crore.

But going forward the pricing power is coming back. Saint-Gobain which is also seen a delisting candidate also seems to be have good plans going ahead because they have acquired the float glass of Sezal Glass about three-four months back. Taking these combined reasons I have a positive view on the auto ancillary sector, the financial performance of the other companies and the positioning of the Asahi India glass. I think this stock looks quite good at Rs 60 and if somebody can keep a view of about six months or so can see a price of about Rs 80.


Q: The other multibagger idea that you have picked for us is Kalyani Steel. What kind of target do you have there?

A: This is a Kalyani Group company having promoter stake of 60%. They are into making of forging and engineering grade alloy and carbon steel. Tomorrow, probably we will have the judgement which will be delivered by the Supreme Court on the Karnataka mining ban case in which it is expected that the A-category mines, which are about 45 mines are allowed to restart and this company falls in that category. If that order comes in probably as indicated by the management they have hinted that in the next two to three months they will be able to restart the mining operations.

They are holding mines which have very high iron content with FE content of 65% with a reserve of about 27 million tonne. Looking at their annual requirement of one million tonne of iron ore that is enough for them to run their plant for the next 27 years. They have very sophisticated plants at Karnataka and Andhra Pradesh and largely based on that news this stock looks quite good.

For the first nine months their performance has not been that great. They had a PAT of about Rs 8 crore while for whole of FY11 they had a PAT of Rs 56 crore. So in my view once the mining operations is allowed to them FY13 can have a PAT of close to about Rs 50-55 crore and going forward maybe for FY14 it can shoot up to as high as Rs 75 crore with a very low equity base and very good working and that translates into an earning per share of close to about Rs 13-14 for FY13 and about Rs 16 for FY14.

It is largely on this news that I am expecting the share to start doing quite well. One can take a conservative target of about Rs 75 in six months but if it is held for a year or so it can breach the three digit mark as well.

Q: Nagarjuna Construction has become quite active on the volumes chart of late. Do you have an investment view on that stock?

A: I have a positive view but the cues are largely from IVRCL because they have an identical business model. The promoter’s stake in Nagarjuna Construction is 19%. They also practically have the same portfolio of the order size of about Rs 20-25 crore, real estate assets, BOT projects and apart from that, huge debts facing the same liquidity crunch.

The market is probably taking the valuation cues from IVRCL and expects the same kind of hostile bid or whatever you may call it, that the potential acquirers may start developing interest. If you also see the FIIs’ holdings, they are also holding about 40% stake in IVRCL and in NCC they are holding about 35-36%. So largely, the common factors of both the companies are making it positive.

Q: Reliance day tomorrow. What do you expect to see or what not this time around?

A: Two things - a 2% sequential drop in the PAT that is at Rs 4,350 crore because Rs 4,480 crore was the PAT for Q3. I don’t think that Q4 really will be better because the petchem is going to give a small hit. Even the refining I have estimated the GRM at USD 6.6 which was at USD 6.8. Except for that there is nothing.

If you take a call on the share price, I don’t think it can really fall below Rs 725 because the company has already bought about 42 lakh shares at an average price of Rs 757. So even if it falls at around Rs 725-730, obviously they will be coming and buying the shares because they have only utilized 3.5% of their funds as of now.

So this time nothing really to apply the minds on the expectations of the Q4 results and the tax liability if you work it out based on the advance tax paid and the TDS credit, it justifies that probably they will have PAT at around Rs 4,350 crore.

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