Stock-analyst SP Tulsian of sptulsian.com, explains to CNBC-TV18 that long positions can be created on all UB Group stocks as he estimates that the proposed sale of stake to Diageo is inevitable.
He is also bullish on mid-cap cement stock Heidelberg as the company has adequate capacity-addition initiatives that will be operational in the next three-to-six months.
Below is an edited transcript of the analysis on CNBC-TV18.
Q: What is driving tyre stocks up?
A: For the past one week, the tyre stocks have been on the rise. It maybe attributed to Ceat Tyres moving up on announcement of good results. A reduction in global and domestic rubber prices could be another reason for this positive bias on tyre stocks.
Q: Hindalco which is now languishing at Rs 110-111 was very weak last week as well. Do you think the stock will fall further?
A: The stock maybe reaching its bottom and I don't think there it will fall any further. All metal stocks such as Sesa Goa, Sterlite and Jindal Steel and Power, are holding on with a marginal gain of 30-50 bps or 1-1.5%. With Hindalco having reached close to the bottom-level, the shorts built up in the system could act as a trigger for the stock to move up. So maybe a couple of rupees lower from here and the stock should bottom out.
Q: What's the problem with Jain Irrigation?
A: Again, the problem is due to a drop in the top-line. The Q1 results have not been very encouraging. I don’t think that there is any complaint regarding interest account, though it has increased sequentially and has already crossed Rs 100 crore.
The problem lies in the growth in top-line because the raw material cost is intact. The interest cost has marginally gone up. Other expenditure is more or less stagnant.
The company is unable to increase its top-line on the supply of micro-irrigation or specialized-irrigation equipment. Another reason might be that the EBIT or EBITDA margins in a few industrial product segments are quite low.
So, the market has expressed its disappointment regarding the company's inability to reduce its interest burden. The market now hopes that probably after September, there will be a reduction in the company’s sundry debtors, which will bring down the interest cost.
Q: UB Group stocks seemed to have lost their way somewhat today. Kingfisher is down; UB Holdings and Mangalore Chemicals have all corrected from last week's gains. Any fears that the hopes of a deal are fading or is this just profit-taking in some of these stocks?
A: It looks pure profit-booking, especially on two stocks - Mangalore Chemicals and United Spirits. I don't think that there is any kind of fear, because the deal has to go through. If there is a complete restructuring of the group including the Kingfisher Airlines, the maximum mobilisation of funds will come from United Spirits.
Regarding United Breweries, I don't think that the talks for sale of stake are now expected to happen with a foreign partner. So United Spirits is the only stock which promises adequate funds.
In spite of very disappointing Q1 results, there has been profit-booking in Mangalore Chemicals today and it's down by about 3-4%. But three or four days after it announced poor Q1 results, the stock rose by about 20% from Rs 43-44 to Rs 50-51.
There was a huge delivery-based buying on Friday. So, that indicates that the deal is due in the near future. I maintain my positive stance on United Spirits and Mangalore Chemicals on hopes of some deal to sell stake in the next one month or so.
Q: Would you take profits in stocks or would you create fresh positions?
A: Fresh positions can get created on select segments like banking stocks. I will be taking long positions on the United Breweries Group - United Spirits, United Breweries or Mangalore Chemicals. Some of the frontliners like Bajaj FinServ and Bata, are also looking good.
So, one has to be stock specific. Even HDFC looks promising with the MSCI's raising weightage and warrant issues fading away.
Q: NTPC is up 4% today. At Rs 175, how does it look to you?
A: This has never been a reliable stock even for traders because of the problems with coal supply. Investors have started to thinking that probably NTPC will have some advantage in terms of the capacity addition regarding which the company has been stagnant for quite some time. But I don’t take this as a positive indication to go long on the stock.
Q: Would you buy Ambuja after its recent outperformance?
A: Yes. I'm positive on all cement stocks and Ambuja looks to be the strongest amongst ACC and Ultratech. So, in my view, Ambuja can head to about Rs 210 in the next 15-20 days. I am expecting the stock to breach the Rs 200-mark in this series itself. I hold a positive view on the stock.
Q: Cement stock Heidelberg is coming up on the charts repeatedly. Have you had a look at it in detail? Do you think the stock could be one of the favourites of the mid-cap cement segment?
A: If you exclude the past one week's correction, when the stock corrected from Rs 43 to as low as maybe Rs 36-37 on distribution or consolidation at those levels. Otherwise, the view is quite positive because the company has been adding capacity.
The company is debt-free, has adequate capacity-addition initiatives in the pipeline which will be operational in the next three-to-six months and has improved its margins.
I holding a bullish view on the stock and I won't be surprised to see the stock moving to about Rs 50 in the next two-to-three months.
Q: With respect to the entire UB Group - even if the sale of stake in USL does happen do you expect it to be at a significant premium to where the stock is currently quoting? The stocks has already rallied about 100% on a YTD basis. Any juice left in United Spirits now?
A: When the share ruled at Rs 450 in the start of 2012, I estimated that if the stake was sold to Diageo, the share might be anywhere between Rs 900-1,000.