Reliance to post Rs 5,750cr PAT; forex crucial: Tulsian

“The crucial part is the BP deal and whether the company has converted its foreign exchange,” said Tuslian to CNBC-TV18. Since the company has been very active in the treasury market, Tulsian expects Reliance to post Rs 1,000 crore as interest income.

Below is an edited transcript of his interview. Also watch the accompanying video.

Q: How do you think Reliance is going to do in terms of its earnings?

A: I think the disappointment will be seen on petrochemicals and oil and gas. But I expect the gross refining margin (GRM) to slightly improve at about USD 10.6 per barrel. Profits after tax (PAT) is estimated at Rs 5,750 crore, translating into an EPS of Rs 17.50.

But if you see the crucial part is BP deal that the company has concluded on August 30th. If you see, the rupee has weakened from 10th September onwards by about 6-8%. So we have to see whether the entire foreign exchange has been converted to Indian rupee at that point of time. The company has also been very active in the treasury market operations and I am expecting interest income for this quarter to exceed Rs 1,000 crore. Also, I think that the bottom-line will be blotted up by the financial or maybe the treasury activity, not operational parameters. By the end of the quarter, the company will be having cash close to Rs 77,000 crore so that should give them a good income.

Secondly, I do not know how the treatment of the minority interest reduction from the PAT will be given. I am estimating it at about Rs 205 crore of BP share for one month. If you see the original terms of USD 7.2 billion, it says that this is inclusive of the sales and revenue adjustments and everything till the conclusion of the deal. So 30th August being the date on which they have concluded the deal is very crucial. From there on, the reduction of oil and gas profits to the extent of 30% share of BP will get adjusted and there will be a reduction in the depreciation and a one time gain. So it is a combination of all. But if you purely take the operational performance, it is likely to be Rs 5750 crore at the PAT level.

Q: There is a lot of excitement on Ballarpur today because of a brokerage report. But people have got into this and had to be really patient, but still never ended up making too much money. Are you hopeful this time around?

A: I am not hopeful. People have really burnt their fingers because of this stock. If you see the news which has been coming in for this company has really not given any return. At that time, the share has moved as high as Rs 35-36, but I don’t think that this time any kind of return is likely to be seen from the company or from the share investment as well.

Q: What about Arvind ? You have been bullish on that name and that’s gone past Rs 100 now.

A: For a couple of months I have been saying that it will move to Rs 100 and that has happened. So probably I will give a pause at this point of time. Some exuberance is taking the stock to move beyond Rs 100, but I don’t think that it deserves a valuation of more than Rs 110.

For FY12, the company will be having an EPS in double digits because of the efforts made by the company to monetize their lend assets to reduce their debt of Rs 1,800 crore. Generally all these textile stocks having a very low PE multiple, maybe of about 6-7, so taking that into account and maybe the additional retail valuations to be given to the stock, I won’t be too comfortable to buy beyond Rs 100. Book profits at Rs 110.

Q: What have you made of this development that has taken place? The fear was that there would be so many more companies named. From hereon, how do you react to it?

A: I think this is an unfortunate incident, but I do not think that the companies are really going to get relief because this matter is monitored by the apex court as well. You may have some companies getting skipped from the list, but I don’t think the larger companies which have already come under the clouds of this report are going to see any relief because the ban is already happening in Tumkur and Chitradurga.

But one exception is NMDC . I have been taking a positive call on NMDC because they should really stand to gain in a good way because of the increase in production and better realization because of e-auction. You heard JSW Steel say that it is very difficult to get iron ore quota. So NMDC should stand to gain, but I don’t think that this will really go well. Now, one has to really look to the behaviour or the remarks which will be passed by the Supreme Court in this matter.

Q: What about Educomp ? We have spoken sometimes in the past about this and today we have got a brokerage report with a price target of Rs 210. Do you think the stock will be unable to bounce back?

A: The stock has already seen a good run-up and we have seen some profit booking in the last two or three days. But honestly, I don’t think that Rs 210 is a likely level. If you recall, when Everonn has announced the induction of Varkey Group, the stock was ruling at Rs 215-220. From there, the stock has really moved as high as Rs 275-280.

So if you have a run-up of Rs 60-70 in less than a month, you are bound to see this kind of profit booking coming into the stock, and that is what is happening now. It should probably take a halt at around Rs 245-250 level, after which we will see renewed buying interest or long positions getting created again. So I don’t expect the share to really fall to Rs 210 levels, at least in this calendar year.

Q: There seems to be no end to the problems for Kingfisher Airlines . Do you think the stock is going to remain at these subdued levels?

A: I don’t think that further damage is likely to get caused to the stock. I am quite optimistic that the management seems to have initiated some actions. We saw a huge rally in the share yesterday; it moved to Rs 23.

My earlier call was that it can move to Rs 16-17 levels. But I don’t think that it is likely to happen because it seems to have a strong base at Rs 20. It may fall by a rupee or so, but it will bounce back to those levels again. I think the management is serious this time and that can give some confidence to the stock, which can make it gradually move to about Rs 25-26 level in the next one month or so.