Below is the edited transcript of his interview to CNBC-TV18.
Q: Which stock would you buy at this point in time as we head into the New Year either from the front liners or from the mid-caps with a one year time horizon?
A: I am bullish on the cement sector going forward especially on stocks like ACC, Ultratech Cement, Mangalam Cement, OCL India and Dalmia Bharat Enterprise. In media space I would pick stocks like Sun TV, Zee Enterprises, Dish TV and TV18. Stocks like Tata Global looks quite attractive. Stocks like Strides Arcolab, Wockhardt, United Spirits and United Breweries Limited is moving in a good trading range. Reliance Capital and Reliance Infra will also provide good trading opportunity.
Q: GMR Infra is up around 2 percent on the revision of the Airport Development Fee (ADF) lower at the Delhi Airport. What are your views on this?
A: The news was already around when the Ministry of Civil Aviation said that they will not be scrapping the ADF. Now the Airports Economic Regulatory Authority (AERA) has passed the order a couple of days back on December 28 where they reduced it by half, that is Rs 100 on the passenger embarking from the Delhi Airport on the domestic passengers and Rs 600 on the international ones.
However, if you really see, this will be the capital receipt for the Delhi International Airport Ltd. which is 55 percent subsidiary of GMR Infra. So again, you are going to have concerns on their financials. Going forward, if you see the financial performance for March quarter for GMR Infra, these receipts will not get booked by the company in the P&L account. One will continue to see losses coming in from the airport portfolio, because now since Male Airport also has gone, the March quarter will get a hit largely because of the non-receipt of any revenue from the Male Airport and non-booking of this ADF into P&L account.
So optically, it looks like they will be having some capital relief or maybe the funding gap can be met with ADF, because this has been extended. Whatever the 50 percent amount slashed by AERA has been compensated, largely by extending the same by a couple of years, but again there is a caveat that they will keep on reviewing this depending on the kind of traffic the Delhi Airport will be witnessing.
However, on the capital account, the company will be having some relief because they were expecting a funding gap of close to about Rs 1,600-1,800 crore which they will be able to meet now with this ADF. So, I will not be too positive on the stock from hereon, because this was very much expected when the civil aviation hinted that this is going to remain. Promoters of the company have not been able to bring in their matching equity finance, hence continuing ADF has been allowed by the AERA as well.
Q: What could the fate of the Kingfisher Airlines stock be? The license of the company expires later today. We have seen the stock get back to those Rs 15 levels or so. Where do you see it go from here?
A: I am not worried on the license renewal, because presently the airline is not operating. So obviously, the hurry is not on part of the management to really expedite the renewal of the licenses. The funding plan applies at all the level including debt restructuring that is required to happen at the consortium meeting where about 15-16 banks are involved with an exposure of about Rs 6,500-7,000 crore. The management needs to give that plan
It also remains to be seen how the Directorate General of Civil Aviation (DGCA) looks at it, because they have to take care of the dues of the Airport Authority of India (AAI), the other airlines and the amount due to the airport operators like GMR Infra, GVK Power Apart from that, they have the liability towards the employees. All these liabilities have to be taken care of by the civil aviation regulator.
The promoters will have to infuse a huge amount. Maybe an infusion of about USD 1 billion will not be enough, because if you really need to include payment made to the banks, maybe part payments then they will have to bring in atleast USD 2-2.5 billion to make the revival plan acceptable by the banks as well as by the civil aviation. All these things will take time.
Things are not going to be operational and even if it expires today, things remain under consideration. It will take maybe about 15-20 days more unless and until the management presents the funding plan. It is now pivotal for considering the revival of the airlines and to allow the extension of the licenses. So, everything depends on the fund infusion by their promoters to the extent of USD 2-2.5 billion.
Q: Any view with regards to Gati?
A: This stock looks quite under-valued because of the kind of restructuring they have done for their global shipping business. They have inducted a foreign partner also and the stock has been languishing. I keeping my positive stance because the things are definitely going to improve hereon. However, we see these intermittent upmoves happening in the stocks which are not sustainable. Maybe the next couple of quarters’ financials will show some respectable improvement in their earnings. Till then, we may see these kind of things, but maybe in this upmove, we will not see the stock moving beyond Rs 42. So, those who are holding the stock can look to exit at Rs 40 plus. Or, the moment it breaches Rs 40 level, one should look to enter again on the dips when it falls or corrects to about Rs 35-36.
Q: PNB is the top gainer on the Nifty. What would your view on PNB be? Would you buy it at these levels of over Rs 850?
A: I will not be taking a specific call on PNB, but there is strong upmove in all PSU banking stocks, more specially the stocks like SBI, Canara Bank, Orient Bank, Union Bank of India and Corporation Bank. They have all been exhibiting good strength and that maybe on the hopes that rate cut will be seen by the RBI in the month of January. Since they are the top six or seven banks amongst the PSU banks, obviously the gain will be seen quite good on those banks.
However, I will not be too positive on the stocks. You have to be cautious, because of the Q3 numbers that are lined up ahead. You will be having 50 percent of these banks reporting their numbers, so I am not taking a specific call on PNB, because it is firm today, but overall a mild positive upmove can be expected in the PSU banks till middle of January.
Q: Do you have any thoughts on gold as an investment? This year it has not been as great as equities for sure. It has just gained about 12 percent odd or so, but it has proved its mettle in the last couple of years. In 2013 any thoughts of whether gold will take as much centre stage as equities?
A: I am not really an expert on gold. However, gold has corrected from Rs 33,000/10 gms plus to about Rs 30,000/10 gms plus. So obviously, the trading interest or the frenzy which we used to see of making investments into the gold is happening with silver too. It has corrected from Rs 62,500-63,000/kg to about Rs 56,000-57,000/kg. Things are not very exciting now, because generally the problem with retail investors is that they always chase the asset class which is seen going up. In 2013, maybe the current level of silver at Rs 56,000-57,000/kg or gold at Rs 30,000-30,500/10 gms makes a good entry point. As asset allocation, one should look to allocate maybe about 20 percent of the investible funds into both these metals.
Q: If you had to take your pick in terms of further upsides from currents amongst any of the stocks, which one would you possibly put most of your money on or most of the probability on?
A: I identified two stocks, Wockhardt and United Spirits. Both have given a return of 400 percent plus and close to about 300 percent. I am still maintaining my positive view. Going by the Wockhardt’s performance they should be able to post an Earnings Per Share (EPS) of maybe Rs 160-170 for FY14 and if you take a Price-Earnings (PE) multiple of maybe close to about 15 times, that can make the stock to move to about Rs 2,200. It is the same for United Spirits with Diageo coming in FY14. I won’t be surprised to see an EPS crossing Rs 50 plus, which in my view could be Rs 55-56. If you apply a PE multiple of about Rs 40 or so, the stock price can move to about Rs 2,200-2,300. So continue with these two holdings if you have in your portfolio.