Dec 26, 2012 09:37 AM IST | Source: CNBC-TV18

Here's how one should play RIL, DLF, Balrampur Chini

In an interview to CNBC-TV18, SP Tulsian of shared his views on stocks across various sectors. He is not much positive on Reliance Industries and DLF. Among the sugar stocks, he believes that Balrampur Chini makes a value buy now.

In an interview to CNBC-TV18, SP Tulsian of shared his views on stocks across various sectors. He is not much positive on Reliance Industries and DLF. Among the sugar stocks, he believes that Balrampur Chini makes a value buy now.

Below is the edited transcript of his interview to CNBC-TV18

Also read: Houseviews: 4 stocks that you can trade before Christmas

Q: What have you made of the FDC? How would you approach that stock now?

A: The management has denied the stake sale. However, one cannot rule out that possibility. If there is smoke, there has to be fire. We may see the stake sale. The kind of run-up seen in the stock price is that it moved to Rs 103-104. Thereafter, post that statement it is bound to come. If one take’s a scenario the stake sale does take longer time. One has due diligence process. These are things seen in West Coast Paper for last three to four months, but no progress has happened.

So, I don’t think that traders can really take a call beyond a point. May be Rs 100 seems to be the cap, beyond that, stock may not move up. However, those who have high conviction and a longer time horizon of three to four months can definitely take a call. However it can only be if the stake sale happens and the chances are 50-50 in my view.

Q:  What are your comments on Mr. Rangarajan submitting a report with regards to the new gas price formula and as of December 2012 it stands at USD 8.1 per mmbtu?

A: I don’t know about the sanctity of this report because there was Dr. Rangarajan’s report on sugar also which was submitted a month back suggesting scrapping of levy. These are reports which are just submitted to the offices. Now, this time it has been submitted to the Prime Minister Offices. The ministry has been very clear that there will be no price revision in the gas price which is at USD 4.2 per mmbtu. That is unlikely to happen on or before 31st March 2014.

After the kind of allegations seen, ministry will not have the courage to do the revision before 31st March 2014. Take the scenario that you have the elections in May 2014. The new government’s term is coming to an end. So, obviously one will have the code of conduct in the month of February.

If elections happen on the schedule and the code of conduct, things will start getting implemented from February 2014. So, I don’t think that anything is really possible. Whether the same government or the new government I don’t think that will be a priority. One cannot put the things of the price revision of the gas from the retrospective effect. They cannot say that even if we have taken the decision in the end of December 2014 the prices will be applicable from 1st April 2014.

So, definitely the things have gone into the cold storage. We should not remain wishful that things are going to get revised upward from 31st of March 2014. So, these are just the recommendations for sake of recommendations. Since committee has been appointed and everybody knows that when the global prices are ruling between USD 12-14 per mmbtu there is no justification for selling the gas at USD 4.2. However, there are a lot of multifold ramifications of any move which government will definitely be very cautious in taking any steps in that direction. So, I am not too positive or excited by this report. I won’t be taking my positive call on Reliance Industries just because of this report.

Q: What is your view with regards to DLF post selling the Aman Resorts for USD 300 million back to the promoters etc. Do you think there is more upside in terms of possible fundamentals for DLF going forward?

A: I am not excited at all by that news. They have removed the Lodhi Hotel, the Delhi property from this transaction. Even if you presume that transaction or property would have remained they were expecting a price of about USD 400 million. May be about 18 months back they were expecting it to be USD 500 million. They have made an acquisition about four to five years back and are now exiting at a loss.

The Lodhi property which has 207 rooms can not be valued for more than Rs 400 crore. So, if you really take the entire consideration, it works out to quite less, may be less than USD 350 million. So, definitely that is a loss making proposition. Same thing has happened in respect to the Mumbai property also – NTC Mill plot of 17 acres which they have sold to Lodha Developer. There also nothing substantial which we have seen happening. Rs 1500 crore debt has been assumed by Lodha’s and they have got Rs 1200 crore in cash.

So, this substantial debt reduction will not be there in this financial year which they have otherwise been very confident of, by March 2013. Definitely that is a move. However, the kind of realisations they are making in spite of such a long delay where the value destruction is seen happening in these stocks. Now the third item which is pending is wind turbine business. Again they are finding it very difficult for any takers because those assets are more of tax incentive strategies. So, I am not very confident that they will be able to pair down their debt substantially, even in the whole of 2013. So, unless and until that happens and the process of development and the sale of their premises in their and project really happens fast, until then you cannot really change your views or take a very positive stance on the stock.


Q: What is happening with sugar today? Balrampur Chini as well as Shree Renuka both these stocks are up around 5-6 percent odd, any news?

A: That may be the value buying seen at lower levels. We have seen destruction in the share price of Balrampur Chini post announcement of state advisory price (SAP) by the Uttar Pradesh (UP) government. Since then the stock has corrected by more than about 18-20 percent. I don’t think that much downside was really seen. The advantage with UP hereon is that they are going to record 15 percent increase in the production on y-o-y basis or on a season to season basis. That to a large extent will offset their severe or may be the increased SAP announced by the UP government.

Going forward the distillery business really remains quite intact. Whenever one has a negative or a positive bias on the sugar stocks, ultimately the trader jumps on Renuka. Now only one sugar stock is available on Future and Options (F&O). So, I don’t think that there is any news in Renuka, but Balrampur Chini definitely makes a value buy after seeing such a big destruction in the share price.

Q: Many of these NBFCs have risen about 15-20 percent in the last one month ever since the Banking Amendment Bill got approved. As we start off the New Year are there any recommendations that you would have, despite them seeing such an up move?

A: No, I will keep some cautious view in some of the stocks like L&T Finance Holdings or maybe Shriram Transport Finance. There are three-four banks which are ruling below Rs 1000 crore market cap. DCB, Dhanlaxmi Bank, Laxmi Vilas Bank are all ruling in the market cap of Rs 800-1000 crore or maybe Rs 1200 crore. Even if these NBFCs are seen as a prospective bank licensee then also the run up seen in their market cap by about Rs 3000-4000 crore seems to be quite stretched. Maybe one can take a selective view on the stocks like Bajaj Finance, Mahindra and Mahindra Financials where there are steams. However, there has been exuberance which I won’t say irrational but has gone beyond the justified fundamentals. So, a cautious view might allow them to correct by 5-10 percent and again look for entry on the new valuation norms.

Q: Did you see the news on Lanco Infratech, the stock is up around 7 percent odd. Have things turned around for the stock and the company?

A: Unless and until they settle the dispute with Perdaman, one cannot really take the call on the stock. Things have come to rest, but Griffin Coalmine their subsidiary has seen some relief. They have put their Udupi 1200 megawatt power projects on the block because of the leverage seen in the balance sheet of the company of Rs 26-27000 crore debt. So unless and until, they are very aggressive, I am very convinced about their project. They have 4000 megawatt operational capacity, 4000 megawatt under erection and 4000 megawatt under pipeline for the clearances. So, if they can get rid of those 8000 megawatt projects which are under the pipeline, monetise some of the assets and reduce the debts only that can drastically change the fortunes of the stock. Till then it is very difficult to take a call.

Even in case of Perdaman, their case is very strong for last 6-8 months but nothing is really happening. As it has also been very adamant, they want the contracts to get cancelled and mines back. So, very difficult to take a call at this stage but I am not taking a negative stance on the stock. It all depends how the developments really catches fast which will reflect into the appreciation of the share price. However, from hereon things are looking positive.

Q: What about you, what's your view on Credit Analysis and Research Limited (CARE) and what you expect to see on opening day?

A: I am expecting a price of Rs 900 plus. However, I am keeping my positive stance on the stock. Maybe a six month target can be taken anywhere between Rs 1150-1200, with a listing of Rs 900 plus. Considering the profit margin of 53-54 percent and the kind of growth they have posted in the first half of FY13 I am quite bullish on the stock. I won’t be surprised to see some momentum happening in the first week. Generally the new listings for initial four-five days are always in the trade to trade. So, not expecting much but throughout the prices are likely to remain or will hold a price of Rs 900.

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