Bullish on Selan Exploration, -ve on Austral Coke: Tulsian

Investment Advisor SP Tulsian of sptulsian.com said he was bullish on Selan Exploration . “Selan does not have any cash problem because it has gone for a share buyback, it has also gone for an interim dividend and has an earnings per share (EPS) of Rs 40-45. However, when I spotted it last week at Rs 225 levels, it was looking very good. Now it has run up way too fast,” Tulsian said in an interview to CNBC-TV18. “My call is: maybe two years down the line, Selan will have a production of 1 million barrel in a year.”

Tulsian was critical of the developments happening in Austral Coke . The company’s announcements to change project locations were just to increase the share prices, he said.

Here is a verbatim transcript of SP Tulsian’s exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Talking about the stock that you are quite bullish on, Selan Exploration — it’s gone up tremendously in the last two days — what makes you most bullish on the stock?

A: Selan has been producing about 120,000 barrels in the year and has been investing close to Rs 100 crore on the discovery. It has already discovered a block, so it just has to make investments on drilling and seismic study to explore the oil.

My call is: maybe two years down the line, Selan will have a production of 1 million barrel in a year. But when I identified this stock at about Rs 225 last week, I did not expect it to shoot up so fast maybe because of the renewed interest in the oil exploration companies. Selan does not have any cash problem because it has gone for a share buyback, it has also gone for an interim dividend and has an earnings per share (EPS) of Rs 40-45. So you had all the comfort on the financials with valuations ruling at around Rs 225 with a PE multiple of close to 5 but now the market seems to have got convinced or too much bullish on the story. I am not saying that I am convinced with this price but I honestly did not expect this kind of run-up because I gave my appreciation potential of about 100% in eight-ten months but that has run ahead of that.

Q: You have been keeping an eye on Austral Coke. What’s your sense of how they are going about things?

A: It is really funny. If you see the track record of the promoters, they changed projects like a trader changes his position. When they went public, they had plans of putting the project at Sindhudurg that they intimated the stock exchange about, then they said they were moving it to Lunva in Gujarat where they have an existing project, and now they are talking of a project in Kolhapur.

They are also talking of a project in Vizag having 6 lakh tonne of lamp project that is low ash metallurgical coke. Such projects require huge capex. They announced that they had acquired 12.63 lakh acres of land, which is 10 times Mumbai city. With this kind of capex and an equity base of just Rs 20 crore, you cannot contemplate a stock split and bonus when the share price is about Rs 50-55 and earnings per share (EPS) is close to 50 paise for the quarter.

The only intention is to jack up the share prices, similar to what they did with their group subsidiary Gremach Infra two years back.

If you consider the shareholding pattern, the public float in Austral Coke is close to 1%, while four foreign institutional investors (FIIs) hold close to about 20% stake, one overseas corporate body holds about 9%. It means the entire chunk of the float has been acquired by the informed circle and now you play on, on the stock price till about Rs 75-80-90 but we all know that its ultimate fate in one-two years down the line would be Rs 10-15.

Q: At this point what would you rate the enterprise value of the business itself at? Austral Coke’s MD talked about a lot of projects but what stands on the ground right now?

A: You cannot take a call because it’s difficult to accept when the company does not have that kind of funds. Austral has gone with an initial public offering (IPO) of Rs 140 crore, the company was not having more than Rs 500-600 crore at their disposal. They have been showing the financial performance partly also from the textile trading division and equipment trading, so you can’t take a call. One is not privy to information like what amount they have spent on progress of all these projects. So you don’t really need big money in creating a news sensation by such announcements.