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May 23, 2012 06:21 PM IST | Source: CNBC-TV18

Airlines good bet amid shrinking players: Tulsian

SP Tulsian of tells CNBC-TV18, on the eve of Jet Airways announcing results, that airline stocks such as Jet and SpiceJet are good bets thanks to rivals Kingfisher and Air India initiating reduction in operations and no adverse event occurring in the sector for the time-being

Market analyst SP Tulsian of tells CNBC-TV18, on the eve of Jet Airways announcing results, that airline stocks such as Jet and SpiceJet are good bets thanks to rivals Kingfisher and Air India initiating reduction in operations and no adverse event occurring in the sector for the time-being.

He is wary of companies such as A2Z, Talwalkars and Wockhardt, despite announcement of positive results,on unsustainability of business, insignificant dividend and the risk of a trading momentum.

On telecom stocks, Tulsian is firm that Bharti and Idea will not fall below Rs 280 and Rs 72 respectively.

Also Read: Jet likely to order 100 planes for USD 3.75bn: CAPA

             How Indigo is eating big boys Air India and Jet Air's lunch

Below is the edited transcript of the analysis on CNBC-TV18. Also watch the accompanying video.

Q: Let me ask you about A2Z first. I remember discussing the IPO and at that point we were agreed that the valuation was not right. At Rs 100, has the value emerged or would you still stay away?

A: If you see the financial results posted by the company for the last three quarters and its plans of reaching out to small pockets across northern India with small power-generation plants, I don't think you can say that the company has totally lost the direction though the kind of financial performance they have posted is really horrible.

I don't think that even at this value interest would come in, though the stocks is up maybe because of shares being acquired by Rakesh and the additional stake which he has been taking in other companies. I won't be taking any investment call on this stock because the kind of business model the company is involved in is very normal.

The main focus of small power plants is not going to really take off and it will be very difficult on part of the company. So though for the whole of FY13 the company is going to be profitable, it will not give the company any respite. But still if you need to attribute some fundamental value, it could be at Rs 70-75.

Q: Talwalkars has been in a range for about two or three months now. After posting a strong set of results, do you think the stock has the potential to move higher?

A: When we look at the whole market, I don’t understand the compulsion to look at these small stocks.

 I don't think that the stocks like Talwalkars, Jubilant Food or Lovable Lingerie is for hardcore investors. If you are really taking a fundamental call, I won’t be too convinced with a quarter’s results because of the dividend declared by the company.

Talwalkars' dividend is about less than 15%, so may be they have posted good results. If you ask or if you talk to the management they may say that they require the amount for expansion and I don’t think that is really too comforting.

All these stocks invite trading interest or maybe for informed buyer playing the market which is making the stock rule at these levels. I hold an apprehension similar to the concerns expressed on stocks like GTL Infra, IRB Infra when they ruled at two-to-three times the present value.

So definitely, it is not comforting for investors to hold these stocks.

Q: What do you expect to hear from Jet Airways tomorrow?

A: The airline is expected to post good results. If these airlines, especially Jet and SpiceJet, can't report the better results now, when will they really post good results?

With high realisation from all sectors and because of low flights operated by Kingfisher and Air India diverting major passenger-traffic towards them, they are really having good a time. Obviously, the plant load factor has improved. I think even in this quarter, if you see, there was nothing adverse for the airlines.


Taking all this into account, I don't think that fuel ATF price has reasonably been passed on in the form of higher fare realisation. Again, we can't expect the bottomline to be posted in black by these companies.

Q: Wockhardt is one of the stars in trade today with a 13% rally. Is there more upside expected from the kind of move of 20% in the last two days?

A: I am not convinced with these kind of valuations.

In fact if you see the Tuesday's results and even if you don't take the net loss of about Rs 192 crore which has arisen because of the exception of about Rs 450 crore, the company is coming back on the track, the nutrition division will be sold and the core business is falling in place.

But somewhere there is a huge trading momentum happening and strong hands are needed to hold investments in the stock. So, these kind of valuations cannot really be attributed largely on the results posted by the company.

Q: Tomorrow there is a telecom panel meeting to discuss the TRAI recommendations. Some brokerages have raised concerns towards the entire sector which has been in the doldrums. Do you expect more weakness in stocks like Idea and Bharti?

A: Overall, if you take a call on the telecom sector, obviously there is no comfort. Even if you take a call on Idea, Bharti, RComm and Tata Tele, the stock may reach its near-term support at least either on technical factors or on fundamental calls.

I don't think that Bharti can really go below Rs 280. I don't think Idea can really fall below Rs 72.

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