Stock analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that allegations of scam will affect, and at times, force companies to lose focus on their core business activities. Tulsian advises investors to bet on sugar and cement stocks.
Below is an edited transcript of the analysis on CNBC-TV18.
A: Yes. All the three stocks have been victims of allegations of scams which cannot be ruled out as all these companies have significant presence in real estate. GMR Infra has been in a mode of denial concerning allegations in respect to the Male airport.
GMR Infra has also faced flak because of the CAG allegations regarding Delhi airport. The allegations made by Arvind Kejriwal have turned into a double whammy for GMR Infra which is already plagued by impact of high levels of debt and no increase in revenues from its airport forays.
So the cloud of caution persists to hover fully over GMR Infra and partly continues to remain on Indiabulls Real Estate.
Public interest litigations (PILs) are bound to be filed in due course of time. The allegations and explanations will not subside and probably the courts will come in. So, definitely negative concerns remain on all three stocks.
A: Ultimately, the companies lose focus on the business activity in the attempt to stem the damage caused by the allegations in the form of loss of share-value, government investigation and lengthy litigation.
Overall, I remain cautious-to-negative on the stocks. In the initial or interim period, the stocks could correct by 10 percent to Rs 185-190.
Q: Do you think JP Associates unable to close the sale of stake in its cement business, would postpone its deleveraging plans further?
A: Not if you look at the glass half-full. With very few cement companies available for acquisition, their valuations have risen to very high levels. The company is in talks with Aditya Birla Group company Ultratech Cement who is keen to acquire the company. So the valuations are likely to be much better. This is a positive because according to the earlier contract, the buyer agreed to only acquire a 50-percent stake with an option to buy rest at a predetermined valuation.
If talks are initiated with the Aditya Birla Group, probably the Andhra and the Gujarat plants with a total capacity of around 9.5 million tonne could be considered for sale and that could, in fact, accelerate the deleveraging process. So I take the cancellation as a positive for the stock.
Q: Do you have any pre-earnings buys on your radar?
A: Not really. One can keep two sectors on the radar - cement and sugar. If you really to take a call on the pre-earning or the pre-results estimates, I will probably be bullish on all UP-based sugar stocks such as Triveni Engineering, Balrampur Chini, Dalmia Sugar and maybe Dhampur Sugar.
Except for stocks from both these sectors, I won't be really taking a call on any other stocks ahead of the results announcement.
Q: Do you see more downside on Polaris?
A: The stock has had a good run-up if you observe the price movement a month ago. The market is very sensitive to this kind of information even if the management is involved. I feel that a positive bias has actually started to build up in the stock in the last one month.
Prior to the last one month, the stock has risen by about 18 percent and at that point of time there was talk that the stock could get rerated and placed in the category of Hexaware and Geometric, because there is nothing negative with respect to the company’s earning and the share is ruling at a PE multiple of 5.
The company also has a good cash balance of around Rs 350 crore with real estate in Chennai which will be monetised. But it will be difficult for the company to regain the investors' confidence after the dent caused by the recent Sebi order.
Q: In today's minor dip, is there any stock from the frontline that you would accumulate at lower levels?
A: The two-wheeler stocks look good. Despite negative news, Bajaj Auto has not corrected. The second stock that still looks quite positive to me is United Spirits. So, these two stocks can be bought from the short-term point of view.
Q: Many of the other mid-caps are showing deep correction and perhaps offer a good opportunity to buy. So would you buy anything in the mid-caps?
A: No. I am positive only on two sectors - cement and sugar. The third sector which really looks good could be the NBFC segment. There are two stocks that which come to mind - Mahindra and Mahindra Financial Services and Bajaj Finance.
Q: Tomorrow, Sintex Industries will announce its results. The stock has actually had a good run in the last one month and has moved from Rs 50 to Rs 73. Are you expecting any meaningful improvement in the earnings?
A: If the company posts a top-line of over Rs 1,100 crore and profit-before tax and before forex losses of over Rs 100 crore, I think it will be seen as positive by the market.
Q: In a report on BHEL, JP Morgan wrote that the stock has seen an improvement only because the mood and sentiment while on the ground, the order booking is still extremely slow. Do you think it has topped out for now?
A: I don't think that anything works purely on mood and sentiment. It is obvious that with the stock moving to Rs 270 in a period of just one month posting a rise of 35 percent, profit-booking is bound to come.
So, the stock could maybe correct to Rs 230-235. I don’t think that any kind of disappointment is likely from the results and the EPS may be over Rs 5 and an EPS target of about Rs 25 for FY13. So, my positive stance continues to remain. This is only a technical weakness after a huge run up of about 35 percent in the last one month.