Moneycontrol
Apr 19, 2017 04:42 PM IST

Here are SP Tulsian's top trading picks

In an interview to CNBC-TV18's Anuj Singhal, SP Tulsian of sptulsian.com spoke about his readings and outlook on the fundamentals of the market and specific stocks.

Below is the verbatim transcript of the interview.

Q: The stock of the day has been Jain Irrigation. On the face of it, the acquisition looked quite good in terms of the price they are paying and the fact that the margins are higher than Jain Irrigations. Your thoughts on the acquisition and the stock now?

A: That is right. In fact, if you see US is a very big market for micro irrigation and the margin which the management has indicated of about 6-7 percent, but the only concern actually going by the indications that they have acquired 80 percent and the kind of money which they have paid of about sub-Rs 400 crore is all looking very good, but in fact that has to see getting reflected into the financials because if you go by the management commentary of the last couple of years, there has been a bit disappointment on the debt reduction front and maybe because of the expectations which they were having in the domestic business also.

Leave aside the last monsoon which was very good, but prior to that in fact, Jain irrigation is always seen to be a beneficiary when there is poor monsoon maybe because of expectations of the order inflow coming in more for the drip irrigation and all sort of things. So on face of it, this looks like a very idealistic acquisition maybe, but because of the existing financial performance and the management commentary having failed in the past, in respect to the debt reduction because management has indicated that 80-20 will be the mode of finance. That means 80 percent of the debt will be availed, closer to about Rs 300 crore which will definitely be further leveraging the balance sheet of the company going forward and 20 percent will come from internal accruals.

So, all these things taken into account and generally we have seen that Jain Irrigation is unable to sustain the prices at the upper level and see swiftly profit booking coming in again and it has many times moved past Rs 100 and corrected back to a level of Rs 96-98. I hope that this time it does not happen, it even post profit booking rules around in the three-digit mark only. Taking all this into account, I will not be a buyer in the stock now at the current price because normal monsoon as I said, with the prediction of normal monsoon also, this drip irrigation companies all seem to be the lesser, as a beneficiary seen going forward.

Q: We were discussing this on the day that second block deal had taken place and that block deal did not really make much sense apart from the fact that it had to be sold. Your thoughts on the stock now?

A: If you see the stake in Bharti Infratel, it is held by Bharti Airtel. All the stakes, maybe to the extent of 75 percent prior to the sale to Canada and KKR, but they have transferred some 12-13 percent to the wholly owned subsidiary of Bharti Airtel. I am unable to understand maybe because of that if the securities transaction tax (STT) is not paid and all that, we have seen many of these type of transactions taking place, but if I do not go into those nitty gritties that what was the logic and reason for transferring or parking that 12 percent plus kind of stake in a wholly owned subsidiary and going forward, if the stake sale is likely to happen as Nisha has said, which is in fact, there has been deliberation that KKR seemed to be having strong appetite.

And if you take a call on Bharti Infratel, probably this seemed to have bottomed out and in fact, if you see the price pattern for the stock for the last one month, in fact this has been or maybe I would say that last couple of weeks, this has bottomed out at about maybe level of Rs 325 with a high having shown at Rs 360-365 and this is all in spite of the interim dividend having paid by the company, hefty interim dividend in the last financial year.

So, taking all this into consideration, Bharti Infratel does not look to be having any kind of downside from here. And if this additional 12 percent kind of stake is getting lapped by KKR and Canada who have already acquired 10 percent stake in the company, that will definitely be seen positive because if you go by the Bharti Infratel shareholding pattern, as such, there is a very low float of less than 2 percent. As I said, 75 percent was held by the Bharti Airtel prior to this deal at about 22-23 percent were held by institutional investor.

So because of this low float, the stock is seen as a high beta stock also as I have given you the instances that in the last two weeks, you have seen the range of Rs 325-365 for the share having traded in that range which is likely to continue. So, downside is not seen from here on and if this deal fructifies, this will be seen quite positive for Bharti Infratel shares.

 
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