The market on Friday closed with the Sensex gaining 180 points to close at 20104 and the Nifty gaining 55 points to close at 6075 after Maruti numbers surprise the street with higher-than-expected performance and the midcaps excelled.
In an interview to CNBC-TV18, SP Tulsian, sptulsian.com takes a positive call on Suzlon. "If somebody can keep a view of 2-3 years, it can give a 200-300 percent return, but yes, in the near-term for 2-3 months that stock should settle at about Rs 24-25 with very minimal downside risk from hereon," adds Tulsian.
Below is an edited transcript of SP Tulsian's interview on CNBC-TV18
Q: The moves on HDIL gets more mystifying as days go by. We have some aggressive target prices by brokerages like Macquarie, but what would you advice investors to do now?
A: I am not too convinced with those research reports. You keep coming out with higher targets or may be lower targets, the downgrade, upgrade and all keep happening. However, in today's market two triggers, that is HDIL and IVRCL, suppose if both the stocks would not have moved up or not have been traded with vengeances, with positive of may be HDIL by about 10 percent and IVRCL by about 5-6 percent, you would have seen gloom prevailing on all midcap stocks as well.
Shorts having been created because there are many aggressive traders who just follow the trend and have gone short on these counters, may be not yesterday but even day before yesterday. Yesterday once they get a huge credit as mark to market, they get further enthused and the shorts have got created. Secondly, if you take a valuation call of Hexaware, Polaris, Sintex and may be SREI Infra, all those stocks have been ruling much below their fundamentals.
For instance, Suzlon, the debt have all been restructured on Monday or Tuesday itself by the banks, but yesterday since the company released an official notice saying that the loans have all been rescheduled with the funded interest with a moratorium of two years, we have seen the stock moving up by 15-18 percent. Today, we are seeing the short covering which has been going up.
Yesterday again, the perception got built that write off the real estate and the infra stocks which is not the case, the problem would have remained with these two stocks that is HDIL and IVRCL, but you cannot just take the same application of the parameters or the basis for all the stocks falling in the same category. So, holding positive view on the real estate and the infrastructure stocks, but for HDIL one has to watch next one weeks move. I will not be too upbeat on creating a long position or becoming an investor in the stock. Given the choice, I will rather look to buy other real estate stocks because they are also ruling at lower levels.
Q: You also spoke about Suzlon and how corporate debt restructuring (CDR) was already known by the market, only the formal announcement came through, but still that stock rallied about 15 percent. If the news is known and we have seen a 15 percent reaction to the stock what should a trader as well as an investor do in Suzlon now?
A: For the last one month there has been dillydallying with respect to the Suzlon loan restructuring. State Bank of India (SBI) chairman have said that there they have no worries on Suzlon loan because they are very much satisfied with its 100 percent subsidiary that is REpower, which is valued at a valuation of maybe USD 2.5-3 billion. These consortium or maybe the SBI as a lead banker have been taking a call to merge that - impress upon the management to merge that REpower into the company that into the Indian arm, which they have not agreed.
About 18-19 bankers are involved with an exposure of about Rs 13,000 crore and now that been the funded interest, the debt has all been given a moratorium of two years. There won’t be any repayment of the installments of the term-loan. Even the payment of interest won't be there and even the part interest on the working capital will also get converted into the equity.
If the banks are converted into their part fund – exposure into the equity and even the promoters are increasing the stake – the company with a top-line of USD 5 billion, I am very much convinced. You have a top-line of Rs 25,000 crore, you have the status of fifth largest wind turbine maker in the world and you have the assets like REpower.
I don't think the debt of Rs 13,000-14,000 crore is a matter of concern because globally the wind power business has been facing some problem. Even in India, because of the withdrawal of the tax all the things have been happening, but with a 2020 deadline where the proportion of 20 percent of the total power generation has to be from the renewable energy.
The stock will catch and I am taking a very positive call on the stock. If somebody can keep a view of 2-3 years, it can give a 200-300 percent return, but yes, in the near-term for 2-3 months that stock should settle at about Rs 24-25 with very minimal downside risk from hereon.
Q: How would you approach Maruti, it is the first profit growth that the company has seen in the last six quarters and with the way the yen is moving, the lowest levels since 2010 do you think there is a lot more to go for Maruti on the upside?
A: Definitely, good numbers but since you have referred the last six quarter numbers, in the last six quarters only if you exclude Q2 of FY13 and Q3 of FY12 which had a bottomline of about Rs 225-250 crore and in Q1 FY13 they had a bottomline of about Rs 425 crore, but they have posted a bottomline of Rs 600 crore plus also.
In Q3 there is no dispute about the numbers as they have been very good but the company will be looking to settle at around 8.5 percent margin which will give them a profit after tax (PAT) of close to Rs 550 crore. This is because yen has given them a little hit on the margin but at least in the next two quarters because in the last six quarter they had big problems. Twice they had the strike, but ultimately they should settle for about 8-8.5 percent margin with bottomline of Rs 550 crore or so.
Q: Would you recommend a Polaris or a Hexaware or both, which have fallen quite a bit on the midcap IT side?
A: I am positive on both the stocks. Polaris has posted dull numbers, but that may be because they keep posting one quarter has been good, their Q2 number has been good, but Q3 has disappointed. Similar is the case with Hexaware. You cannot expect the stock to correct to a level of about Rs 80 because still you have the story.
I am expecting good Q4 numbers as they have the calendar year as the year ending. So, both are looking good, but may be some upside or a little more upside is seen in case of Hexaware. The stock can move to about Rs 90-95 by the time company declares the results, but still positive stance on both the stocks.
Q: Were you disappointed with the postponement of the empowered group of ministers (EGoM) with respect to the Oil India offer for sale (OFS)? It could happen post the Reserve Bank of India (RBI) policy and how do you approach all this?
A: Definitely disappointed, because now the time is clicking – the government has the time now. Whole of January has gone, so they have just a couple of months to meet their targets and have four or five OFS lined up.
Oil India and National Thermal Power Corporation (NTPC) both have been very crucial for the fund mobilisation because both could have given them anywhere between Rs 17,000-18,000 crore, which would have given them a big comfort maybe to the analyst as well as to the government also to meet their Rs 30,000 crore target. So, I don’t see any reason why this has been postponed because for Oil India I have been keeping a view that floor price is likely to be anywhere between Rs 520-525.
I think that should be a good price realisation to the government and I don’t understand the reason for postponing it unless some 50 basis point (bps) rate cut is expected by the government, which can improve the sentiment of the market or some gas price hike that is likely to get contemplated by the government in this interim period.
Q: Oil and gas have been the cracker performers this week. How would you approach Oil and Natural Gas Corporation (ONGC) as we head into the new week?
A: Difficult to take a call because I don’t know what kind of subsidy sharing or maybe the under-recovery sharing will be directed by them. But things are looking good for them if you see the run up for ONGC and Oil India. If you have the OFS lined up for Oil India you won’t be taking the positive stance, which I have been maintaining since it has crossed Rs 550 plus and similar is the case with ONGC. Unless you have a clarity, it is difficult to take a long view on the stock at the current level and on oil marketing companies (OMCs) I have been maintaining my negative view.
Q: Jet Airways has spiked up about 6.5 percent this week. All eyes are now on the deal with Etihad fructifying, but how much more would you give the stock from here?
A: I wont be giving a value of more than Rs 630 crore, because the present market cap of Rs 5300 crore, that I attribute for the 76 percent stake. Presume that Etihad brings in about Rs 1800 crore for 24 percent stake, so the enhanced equity, about 2.75 crore shares will get issued to Etihad and that value of Rs 1800 crore divided by 2.75 gives you a value of about Rs 660 per share which may also trigger the open offer. Taking all this into consideration, I don’t think that the stock has potential to go beyond Rs 660 on the valuation parameter, but if the perception changes on the stock because of the Etihad coming in, that is a different case. So, right now I a keeping my cautious stance and the moment the share reaches Rs 630, I will advice profit booking for those who have been holding it.