Buy HDFC Warrants, avoid GTL Infra and Godrej Prop: Tulsian

The Q1 result of HDFC is expected on June 11. They are likely to post a growth of 20% for the whole of FY13 considering advantage tax payments, indications or the guidance given by the management. I am unable to understand why these warrants are ruling at a discount of Rs 4-5 over the underlying shares.

So, this is a good proxy to the warrants as warrants will remain tradable till the end of the expiry as the conversion date of the warrants are August 24, 2012 by which you can convert them into the share by paying Rs 600 with no ex-dividend element.

Below is edited transcript of his interview to CNBC-TV18. Also watch the accompanying videos.

Q: How would you approach telecom stocks like Bharti , Idea etc with up coming key event in the evening?

A: This upcoming event will not give any positive direction to the share price. The stocks are already up 4-5%. I am not very confident and positive on taking the call ahead of the EGoM meet. It's better to wait for the outcome and then take a call on the stocks.

Q: What is the reason for the up move of Essar Oil and MRPL , is there anything which attracts you in these stocks?

A: Though the crude prices has increased in last couple of day but there has been no improvement in the GRM or the company is likely to post better results. Essar Oil has a continuous problem of sales tax liability payment after which the stock corrected to Rs 52 and as I mentioned earlier, that Rs 50 is a good support for this stock and has good trading grip. In spite of negative news prevailing that time it will quickly bounce back because of the low float and high promoter stake. Similar is the case with MRPL. These types of rallies don't sustain for a long time. So, I am unable to connect the specific reason for the upsurge in both the stocks today.     

Q: What is your view on Godrej Properties and what is the target you have on it?

A: In the last 1-1.5 months the stock has given a net negative return of close to 25%. This stock has corrected from about Rs 630-640 after the promoters reduced their stake in the company to about 75%. Even if this stock gives a return of 10-15% I won’t be too comfortable with this stock. This stock looks expensive and I have a negative view on this stock.

Q: HDFC Warrants today rallied 18%, what is the reason for the run up and where do you see the stock headed?

A: The Q1 result of HDFC is expected on June 11. They are likely to post a growth of 20% for the whole of FY13 considering advantage tax payments, indications or the guidance given by the management. I am unable to understand why these warrants are ruling at a discount of Rs 4-5 over the underlying shares.

So, this is a good proxy to the warrants as warrants will remain tradable till the end of the expiry as the conversion date of the warrants are August 24, 2012 by which you can convert them into the share by paying Rs 600 with no ex-dividend element.

So, anybody planning to buy HDFC shares at Rs 675, can look to buy these HDFC Warrants which are ruling at a discount of Rs 5-6 because logically in my view if you are paying a premium of maybe about 15% for buying futures in F&O, it is better to buy the warrants. So, still I see some upside to happen because I am keeping a positive view on the share. I expect the share price to move to Rs 690- Rs 700 by July 11. HDFC Warrant has already given 100% return in last one month and I am still expecting them to move by 15-20% from hereon in next week or so.

Q: The distinctive trend that we have seen in the last many weeks is the outperformance from the mid caps. Do you expect this to continue for a while and if yes, which are the pockets that you see a lot of fervor coming in from now because there are so many spaces that are moving be it some of infrastructure name, sugar is doing quite well too?

A: You have rightly narrated the sector and I expect this rally to continue. I maintain my positive view on mid cap banking stocks. When you compare DCB , Dhanlaxmi Bank and Karnataka Bank in the private sector banking space with the valuations of ICICI and Axis Bank you will see that these mid cap banking stocks has not really moved in the same proportion. In mid cap PSU banking space UCO , Andhra , Allahabad , Dena Bank and IOB looks quite good.

Revision of downward production estimates to 25 MT for next season, starting October is a positive factor for these stocks. Up coming demand for sugar in the Middle East belt due to Ramzan for the next 45 days will give these sugar companies good realization. I have a positive view on sugar stocks. Apart from sugar stocks I am more positively inclined towards infrastructure stocks like Lanco Infra , Suzlon and Nagarjuna Construction .

Q: United Spirits is at Rs 750, what is the latest that you are hearing about the stake sell with Diageo and how much upside you can expect in USL?

A: I am not taking a stake sell call as firstly I was expecting that to happen more in case of United Breweries where Heineken holds 37.5% stake and 37.5% is held by United Breweries Group in United Breweries .
Diageo is the second largest spirit maker in the world after United Spirits and they are very desperate to take ownership in United Spirits. I have been maintaining a positive view on this stock when the stock was ruling at around Rs 450. Diago may pay Rs 1,100-1,200 a share to buy United Spirits but I am unable to take a call whether the stake sell will be made by UB Group in United Breweries or United Spirits.

I have been taking a call for last three-four months that it will be compulsive for UB Group to exit from one of the companies. According to the news flow there maybe a part exit, maybe 20% stake sell will happen in United Breweries, UB Group may look to divest their or reduce their stake from 37.5% stake to about 20-25% and part stake sell in United Spirits but if anything happens in both the companies, they can fetch a valuation of United Spirits can fetch a valuation of Rs 1,100 to 1,200 per share and United Breweries can fetch a valuation of Rs 700-750 per share.

Q: What is your view on GTL Infra ?

A: There is no point in taking a call on both GTL and GTL Infra because the combination of same tower business is giving valuations to both these companies. This is again postponement of liability. If there would have been repayment of the FCCB liability there is something to cheer about because traders become too optimistic and gung-ho and they start jumping on this penny stocks. I will advice to remain away from both the stocks.

Q: Do you expect further weakness in Jindal Steel & Power ?

A: In the ferrous metal stocks this is the weakest stock. The FY10-11 result were good because of the arrangement they had with Sadra mining company which is now banned because of the royalty evasion and that profitability may not happen going forward.

So if you rerate the stock or if you take a relook to the working of the company things are not looking that rosy. So I am keeping my negative stance on the stock. The stock can correct to about Rs 420-425 due to technical weakness, which we are seeing because of the run up, which we have seen in the last 3-4 days on the stock.

Q: DLF has been the big star from the frontline railway stocks. What kind of target would you associate if you are trading in that stock now?

A: A lot of news flows are lined up for the company and I will closely watch whether they announce the sale of their Mumbai plot of 17 acres, which they have acquired from NTC because that is likely to fetch them  Rs 2600-2800 crore. Second the sale of Aman Resorts, which is also learned to be at an advanced stage and can also be sold for about Rs 2500 crore, close to about USD 450-500 million and the third is the launch of the golf premium township projects that can also be quite positive and can give them a mobilization of about Rs 2000-2500 crore via booking of the amount. So collectively if they are able to mobilize a fund of USD 1 billion and use that money for retiring their debt to the extent of Rs 2500 crore then that will be seen as quite positive. Apart from that the positive view on the realty sector has been helping this company. So taking all this into account in the near-term I will keep a target of Rs 228-230 for this July series where again if those levels are achieved then again the call can be renewed at that point of time.

Q: Crompton Greaves has moved well on the back of news about Belgium cost cutting, do you see more upside for this stock?

A: Yes, if they are able to control their European companies, which they have acquired in the last three years that will be a big positive. For their power distribution division the dampener has been from their overseas subsidiary because their domestic standalone performance shows that they are able to maintain an EBIT margin of 11-12% while on a consolidated basis it is at 5-5.5%. So, I am quite hopeful that the cost cutting, which they have initiated for their Belgium subsidiaries are going to show results maybe in Q2-Q3, so I am quite positive on the stock and as such I am holding my positive on the capital goods sector, so a combination of both.