Cement price hike may not improve margins of cos: Tulsian

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In regards to the news of a possible hike in cement prices post the monsoon, SP Tulsian of sptulsian.com told exclusively to CNBC-TV18 that he doesn't think this will help the margins of cement companies for the next quarter or so.

"We have seen an uptick in the share price of two-three companies like ACC , Ambuja Cement and JP Associates , but in my view, it may be a news lead rally" he added. He was referring to the news of a possible merger between ACC and Ambuja Cement and the stake sale by JP Associates.

Giving his views on the new Land Acquisition Bill, Tulsian believes that the new Bill will be positive for those companies that are sitting on large chunks of land in their land bank. "However, going forward, there may be some problems in respect to land acquisition or may be in terms of the cost" he said.

Below is an edited transcript of his interview with Mitali Mukherjee and Ekta Batra. Also watch the accompanying video.

Q: First, one word on the details that have emerged on the Land Acquisition Bill and what you think infrastructure companies should take away from it?

A: I think the existing players who have been holding large chunks of land will obviously stand to gain from it. Going forward, there may be some problems in respect to land acquisition or may be in terms of the cost. But I don't think that should really be a concern. If you take the overall perspective, it takes into account the protection of farmers and the other concerns that we have witnessed in the past in West Bengal and the Noida region.

So overall, it will be positive for those 15-20 companies that have been holding quite large chunks of land with them for developments.

Q: There is some talk about a big hike in cement prices post monsoon. How would you approach some of these stocks now?

A: There are two points; one whether this price rise will really be for the cost or for increasing the margin of the company and number two is the quantity growth which is likely to be posted by the industry. Presently, the industry is operating at a capacity utilization of anywhere between 75-80%. There has been some capacity addition to the extent of 40 million tonne and the kind of growth we are witnessing on an installed capacity of 300 billion tonne is about 7-8%. So I don't think that pricing power can really come back to the companies in general.

But we have seen an uptick in the share price of two-three companies like ACC, Ambuja Cement and JP Associates. In my view, it may be a news lead rally. Again there is talk about the merger between ACC and Ambuja and that will really be creating a big giant with capacity of 50 million tonne plus. Similar is the case with JP Associates, where the 25% stake is contemplated to be given to private investors because there is appetite for acquisitions of companies, especially where the capacity is more than 10 million tonne. So I don't think that even with the price rise, the margins of the company can really get improved in next quarter or so.

Q: The other one which has been on the radar and doing pretty well is Shree Renuka which is up around 4%. Give us a sense of what you are making of Shree Renuka and that entire news with regards to private equity players possibly looking at the Brazilian operations.

A: I think that will be wise move on part of Renuka because if you see the debt, they are sitting on close to Rs 5000 crore and that is purely the term loan and the kind of acquisitions they have made; two acquisitions in Brazil can given them an appreciation of more than about 120-125%. So even if they knock of 25% stake in those two, their 100% subsidiary, that can deleverage the balance sheet of the company to a great extent and there will be huge saving in the interest.

So this seems to be a logical move. I don't think that there is anything positive apart from this, giving the stake in their overseas Brazilian subsidiary to the PE investors. Otherwise, on the commodity front I don't think that there is any positive news for the stock.

Q: SKS Microfinance has done well after bouncing from the lows of about Rs 200. How does it appear to you?

A: I have been maintaining a negative view on SKS Microfinance . If you see, the stock has been hitting upper circuit for last three days because there was a buzz that they are eligible or maybe seen as a candidate for the banking license, which I see as a remote possibility.

If you see their Q2 - Q3 working, I don't think there is going to be any respite. Q1 results have been very bad, negative EPS of close to Rs 16-18 and the same trend is likely to continue. If you take a price to book call also, it is looking quite expensive and it looks like this kind of financial performance will come in from the company even for the next two quarters.

Lately we have observed that the stock has become highly volatile. Either it hits the upper circuit or the lower circuit which is in fact very damaging for traders to take a call. I don't think this is a fit stock even for the traders and based on pure fundamentals, I will be keeping my negative view on the stock.

Q: You look at the IPO space very closely. Any thoughts on Brooks Labs and the drudging that it has seen?

A: I gave my call on Brooks as a fair value seen at Rs 40. Other stocks prevailing in the same space have all been ruling at a PE multiple of 5-6 times. But the problem is that whenever this stock corrects, it may fall much lower than the expected valuations.

The main concern is that it is really amazing or pathetic to see these IPOs hitting the capital market way beyond their valuations. Same thing holds for Rushil Décor . The speculative activity or operator play continues for 15 days to 1 month and then ultimately they correct by 25-30% of their issue price or maximum 40%. So same thing, again pure negative call on Rushil Décor as well.

Q: Your thoughts on Reliance and ONGC and the entire oil and gas space? How would you trade it now?

A: Both seem to have a limited upside from here on. I am expecting Reliance to see resistance at Rs 845-850. Same thing is likely to happen with ONGC because in view, once the FPO price band gets announced on 18th or 19th, I don't think that share will fall below Rs 250, but it cannot go beyond Rs 265 as well. So maybe limited upside in both the stocks which will keep the oil and gas sector little range bound or subdued for a week or so.

Q: There is some news with regards to SCI looking at Bharti Shipyard quite aggressively or ABG Shipyard etc plus the Pipavav deal that happened earlier today. What's your thought on both of these?

A: This kind of intention has been expressed earlier also by SCI, but I don't know the reason. I don't think that they will be looking to acquire more than 5% stake in any of these companies. So may be it's just the surplus funds getting parked into the similar companies to have a feel or keep a track on the fares or the business of those companies. But I don't think that this is significant news in anyway for SCI.