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See settlement on the cards in RIL-RNRL dispute: SP Tulsian

Published on Tue, Nov 10, 2009 at 15:35 | Source : CNBC-TV18

Updated at Mon, Dec 07, 2009 at 15:09

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Part of the reason why the markets were feeling happy yesterday was that there were some rumours on whether there could be a settlement in the Reliance family once again.

They are rumours and completely unconfirmed but the whiff of that was enough to take Reliance up 3%.

In an exclusive interview with CNBC-TV18, SP Tulsian gave his views on the development.

Below is a verbatim transcript of the exclusive interview with CNBC-TV18. Also watch the accompanying video.

Q: Do you think there is any substance of a possible settlement to the rumour which is floating around?

A: I don't know. For the last one month or so before the Supreme Court hearing started--October 20--I have been feeling that this time a settlement is likely to happen because we have seen the battle been fought in the court also and nothing concrete coming out of that in favour of both the parties in spite of RNRL winning at the Bombay High Court,

So this time I have a strong feeling that settlement looks on the card and both the brothers, may be, will try to reach on a settlement in the next two-three months.

Q: Could it be the names that are being talked about--Deepak Parekh, KV Kamath and Nimesh Kampani--because they are influential as well in order to broker any kind of deal between the two?
A: Some of the names that you have mentioned have already been active for last six months or so. But maybe this time some additional names have come on the surface. Maybe this time the collective strength or the collective power of all the so called well-wisher or the mediators could act in a combined way and may persuade or convince both brothers to go for settlement.

Q: If indeed the deal is struck and it's a big 'if' between the two camps at USD 3.6/mmbtu, do you think it will be good for the market and good for both companies?
A: This will definitely be good for the market but this will be good more for Reliance Industries because if you see the price for which both the parties are fighting USD 4.2/mmbtu on one side and USD 2.3/mmbtu on the other side.

So what Reliance would be sacrificing is 60 cents per mmbtu and RNRL will be paying USD 1.28/mmbtu extra. Obviously, on arithmetical basis it will be in favour of Reliance Industries.

Secondly, because sentimentally this could have impacted their profitability though they would not have supplied the gas to RNRL over the next three years, maybe three years down the line you may have ample gas production. I don't say there won't be consumption of gas in the country but we do not have the distribution network, we may not be having matching distribution network three years down the line. So taking all this into consideration, think this will be more in favour of Reliance Industries and that is how market will also see it.

Q: Working on the premise that some kind of solution is worked out aside from Reliance from the ADAG side which stocks stand to benefit the most? Is it RNRL or is it something like Reliance Infrastructure?
A: I don't see much hopes coming in for RNRL but Reliance Infrastructure holds a good promise because, maybe at least, the process will start and you will see the steps being initiated by the company in respect to power generation and other infrastructure and as well as for Reliance Power also because they will be taking up the Dadri power projects and activity will start on that front. So, except for these two stocks I don't think that much benefits will be derived by the ADAG stocks.

Q: Any thoughts on Maytas after the recent order that they have bagged and the way the stock has moved?
A: Again the company is coming back on the track. Earlier, we have seen because of the financial problems, the liquidity crunch and the orders they have been losing, they have started divesting their minority stakes in the joint ventures or special purpose vehicles (SPVs). So the company is coming back on the track and the valuations are attractive. That is the main reason for the stock to move up.

Q: Did you have a look at Dhampur Sugar's numbers yesterday? What did you make of it and generally how would you approach the sugar space now?
A: I am quite bullish on the sugar sector but I am really disappointed with the Dhampur Sugar results. Its bottomline is Rs 14 crore for the quarter and for the full year it is Rs 56 crore. That means you have identical bottomline coming in all the four quarters and surprisingly the company has not provided for tax liability in their audited statements account.

I am unable to understand that even if they have accumulated loss there should have been some tax liability. So I am not convinced, they have sold out 9 lakh bags of sugar at an average price of Rs 28 and that should have given them a very good profit. They had liquidated stock of about Rs 183 crore, the decrease in the stock is to that extent.

So based on my calculations, I was expecting PAT to be about Rs 36-40 crore. I am bullish on the sector but disappointed with Dhampur's results.

Q: What would you buy from cement after the fall?
A: Though I am not very positive on cement stocks, sometimes you have the idea that the story of takeover of the companies will start and one should keep an eye on takeover targets. For that reason I find Shree Cement as a suitable candidate. The company has best fundamentals; they have the highest EBITDA margins and may also become a takeover candidate. In South, Madras Cement holds some potential to buy at these levels.

Q: What is going on in Jai Corp? In the last two days it's up some 20%.

A: Since yesterday the price bands have been revised and Jai Corp falls in that category where the price band has been revised to 20%. We saw that in the last half hour the share hitting the upper band and frozen at those levels. If you see the developments, for the past couple of months there has been uncomforting news coming in for this company that they have stagnation in their business model, they have liquidity crisis, they may not be able to see much growth in their business in which they have entered because of some problem with Reliance Industries also as not so much of business is coming in from that group.

So it was correcting and it has corrected to about Rs 155-160 in the last one month or so, but this seems to be informed buying or push given to stock because you cannot justify or attribute any fundamentals for such a steep rise of more than 35% in the last one day. I am not convinced on a fundamental basis for this price.

Q: Any thoughts on NMDC? Interest in it has raved up considerably after the government's pronouncement over the last few days--it is up 15%?

A: I have discomfort on the valuation of two stocks--MMTC and NMDC. MMTC which is ruling at about 36,000-37,000 but I hold a valuation of not more than 5,000 for that stock. When taking a call on NMDC, I don't say it is such steeply valued but when you compare it with Sesa Goa, I don't think these kind of valuations are justified because of the paucity of the stock, because of the very low float. I do not think the efficient price discovery is happening in both these stocks. So let's wait for the fundamentals to pan-out when the company will be crystallizing their FPO plans. But as of today, I am not comfortable with the kind of valuations we have seen post this run up in the stock prices.

Q: What are you hearing in the market about the market hours when does it hit the extended phase?
A: I don't know, maybe some thought is being given by the exchanges also. I have been totally against this move, I don't see any logic and there are, in fact, more problems and less benefit. So I hope the process won't get implemented.