KFA needs to take aggressive steps for revival: SP Tulsian

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KFA needs to take aggressive steps for revival: SP Tulsian

Even though Kingfisher Airlines’ management is doing everything it can to get the company back in line, SP Tulsian of sptulisan.com is not confident their actions are aggressive enough.

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Excerpts from Closing Bell on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Kingfisher Air BSE | NSE 01/06/12 Are Mutual Funds betting on Kingfisher Air? Other Stocks in this news GMR Infrastructure | GVK Power & Infrastructure | IVRCL | Lanco Infratech | United Breweries Holdings | United Spirits | Shree Renuka Sugars |

Even though Kingfisher Airlines ' management is doing everything it can to get the company back in line, SP Tulsian of sptulisan.com is not confident their actions are aggressive enough. "I also don't think the rights issue of Rs 2,000 crore or the infusion of about Rs 400-500 crore in each stage will really be helping the company," he explained. According to him, the company needs an infusion of Rs 4000-5000 crore in one go and a 30% haircut in exposure.

He further goes on to give his view on different stocks and sectors.

Below is an edited transcript of his interview with Udayan Mukherjee and Sonia Shenoy.

Q: What did you take away from the Kingfisher communication?

A: I don't think that any concrete or definite plan has been given by the management. Mr. Malaya has been very confident in saying that they are not asking for any haircut from the bankers, but I don't think the revival of the airline is really possible unless and until he really aggressively goes for a big relief or big waver. Total 17 banks are involved of which maybe 5 banks are having exposure of less than Rs 100 crore, so he has to aggressively look for at least a 30% haircut on the total exposure, which currently stands at about Rs 7,000 crore.
 
I also don't think the rights issue of Rs 2,000 crore or the infusion of about Rs 400-500 crore in each stage will really be helping the company. As a promoter, he has to look for infusion of at least Rs 4,000-5,000 crore in one go. He also has to get rid of the interest liability because if you see the financial performance of the company up to FY11, the cash loss was exactly the amount of interest paid by the company, which is at Rs 1,320.

But if you see the Q2 results now, the fuel cost has started taking a hit on the financial performance of the company which stands at about 53-54% of the total revenue, up from 40% earlier. In fact, that has been the case with all the airlines. So these three-four major points have to get initiated on a very aggressive way, maybe within one month or so. These kinds of waivers have been given in the past; if you recall in 1998-99 banks waived the steel sector.

So if there are some major points getting initiated or relief coming in from the lenders of the company, Kingfisher Airlines can really see big chances of revival or at least putting back on the track of its financial performance.

Q: What's going on with the infrastructure names? Have these gone below levels where you thought these stocks would bottom out?

A: Let me confess that yes they have all fallen below the levels which I was expecting for all of them. But I think the problem for all these companies is that at every quarter they are loosing. If I just place GMR Infra and GVK in one category, they are loosing on the revenue clearance front because of the error from the airport economic regulator. Other infrastructure companies, like IVRCL or Lanco are suffering on account of the liquidity and the margin pressures. So those things are getting reflected in the share price of all these companies.

One good thing is that IVRCL has initiated the majors, but I don't know how far they will really be able to succeed in retiring the debt of at least Rs 1500 crore. In fact, that goes with all the players whether we talk of GMR Infra sitting on a debt of Rs 20,000 crore plus or GVK.

On the other hand, they have been aggressive in increasing their stake in the airports, acquiring coal mines abroad and all that, but nobody is really initiating the majors to cut the debt which they are sitting. It is due to this that we are not seeing any improvement in the margins or improvement in the cash flow of the company. So that is the main concerns for all these stocks right.

Q: You were talking about UB Holdings yesterday, but United Spirits has fallen 12% today. What's going on there?

A: The worst stock affected of the UB Group is United Spirits. The market cap of company is now at about Rs 10,000 crore, with promoters holding about 28% stake in the company, of which 18% is held by UB holdings. This 18% is entirely pledged to about 10 banks because UB holdings has availed secured loans of about Rs 1500 crore, and that amount in turn has been lent to Kingfisher Airlines. The remaining shares of about 10% has been pledged as collateral for the dues of the Kingfisher airlines to the 17 bankers who have directly given the assistance to Kingfisher airlines.

So if anything happens, obviously these lenders will really be falling on this security because it is easily en-cashable, and it will fetch them about Rs 2000 crore plus. So this is the most vulnerable stock and that is why in fact I am maintaining negative view.

Conversely, if you take the case of United Breweries, the foreign partner is holding about 39% stake while the Mallya Group is holding about 35% stake. There are talks that the foreign buyers are very keenly persuading the Mallya group to divest 35% stake in United Breweries. Currently, United Breweries has been ruling very strong and if the Mallya group agrees to divest that 35% stake in United Breweries, it can be done at a price of about Rs 500 per share. So this is the dichotomy between the price behavior of United Spirits and United Breweries.

Q: Where do you think Shree Renuka will stabilize now?

A: My call is that Rs 35 looks the realistic level. Maybe we are seeing the overreaction or maybe the long positions getting liquidated along with the delivery based selling. But if you take a call on the assets, I don't think there are any concerns. The concern is only in respect to the Rs 8,000 crore debt, of which Rs 1,000 crore plus is backed by the inventory held by the company.

The management has categorically stated that they are very proactive with the monetization of assets, which is likely to happen by December. If that happens, it will definitely be finding some support at Rs 35. In fact I don't see the stock falling below that. Maybe in next couple of days you may see a level of Rs 30-31. That maybe the level on a technical ground but I don't think that it will really sustain at those levels. It has to bounce back sooner or later in next 10-15 days at about Rs 35 where it should be seen as its fair bottom.