SP Tulsian reviews Sterlite, BHEL, KFA, Sesa Goa

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SP Tulsian reviews Sterlite, BHEL, KFA, Sesa Goa

SP Tulsian of sptulsian.com in an interview to CNBC-TV18 shared views and outlook for stocks like Sterlite Industries, Sesa Goa , BHEL and Kingfisher Airlines.

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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

SP Tulsian of sptulsian.com in an interview to CNBC-TV18 shared views and outlook for stocks like Sterlite Industries , Sesa Goa , BHEL  and Kingfisher Airlines.

Below is the edited transcript of the interview. Also watch the accompanying videos.

Q: What about his potential news on Sterlite and Sesa Goa, how do you read it?

A: The background in which this news has germinated is that Vedanta group is looking to transfer stakes held by them in Cairn India to Serlite Industries. Sterlite Industries is going to become the holding company. If I move on this premise, it is a very positive move. But, ultimately everything boils down to the swap ratio because couple of years back Sterlite had moved similar proposal, which was against interest of minority shareholders. It was a bit complicated and they were forced to drop that proposal.

Cairn India holds 39% stake. I am excluding 24% stake held by Sesa Goa. So, if they transfer 39% stake into Sterlite Industries, eventually taking the current price as the base, they will be able to raise their stake in Sterlite Industries to about 75%. I am seeing this as a precursor by the group to initiate a move to purchase the residual stake of the government to the extent of 29% in Hindustan Zinc and 49% in BALCO.

Collectively, the group will require about Rs 23,000-24,000 crore for buying both these stakes. They need Rs 17,000-18,000 crore for Hindustan Zinc and Rs 4,000-5,000 crore for BALCO.

Ultimately, they will be looking to raise this kind of money based on cash flow of Cairn India. If Sesa Goa gets merged with Sterlite, this stake of Vedanta transfer to Sterlite, Sterlite will be holding 58-59% in Cairn India. Cairn India will be making a cash profit of about Rs 10,000 crore every year. So, they will be looking upon to capitalize this cash generation for buying out residual stake.

Otherwise in the present form, the balance sheet of Sterlite Industries will get stretched. There is no other point in buying residual stake in any other company because both these stakes are presently held by Sterlite Industries. So, it is a composite move and if that happens then Sterlite Industries will be the holding company for ferrous metal business, non-ferrous metal business and crude.

Apart from that, all the stakes in these three businesses will be more that 50%. So, everything will get consolidated on the top-line and bottom-line. In this background, there will not be in fear of company discounting for Sterlite valuations. If that happens, it will be very positive for Sterlite Industries overall and its shareholders, but one has to look for the swap ratio. I am presuming that swap will happen based on present market capitalization of all the companies.

Q: What did you make of the move that BHEL saw last week? How much do you think it could rally more from here?

A: There are multiple benefits. There are two points to highlight, one is NTPC tender and other is postponement of stake sell by the government. I have not seen stake sell as negative, but that would have kept the price depressed at the level of Rs 270-275 because the institutional investor's appetite was very huge. The import duty on mega power projects with power generation capacity of more than 1,000 megawatts is likely to get increased to about 19%.

If that comes in, it will be the third benefit. All the power generation companies have signed fuel supply agreement, so there will be a mad rush by March, 31 2014 because March 31, 2015 is the completion date. Everyone will be trying to procure turbine boilers and generators from BHEL to have that kind of delivery.

With the kind of growth they will be showing in the next two years, it will improve the performance of the company by 25-30%. I don't think apprehensions about low or poor order inflow will be a concern now. Taking all this into consideration, the stock can move to about Rs 340-350 in next one month. Overall capital goods are likely to remain in limelight.

Q: We have some numbers on Kingfisher, like Rs 400 crore is sanctioned as working capital, Rs 500 crore is interest to be paid; reports were suggesting that it could be lower, so perhaps these figures doing the rounds are higher than what the street is expecting. The stock has seen a good amount of recovery as well. What are your thoughts on this?

A: Rs 500 crore interest is a contra entry because banks will give that kind of amount and that will immediately be paid to the banks. So, that is just to regularize and to show the recovery of interest having made by banks from Kingfisher Airlines. But, infusion of Rs 400 crore working capital loan will be a breather for the stock. Vijay Mallya has been saying for last three or four months that he is hopeful of clearing dues by end of March.

As far as stake sale in United Breweries is concerned, the foreign partner Heineken seems to be keen to buy 37.5% stake in the company at a very huge valuation. That 37.5% valuation is about Rs 6,000-7,000 crore. Though we have been seeing a lot of hue and cry about pilots leaving, flights cancellation, losses and account freezing by Income Tax department, but the news of additional infusion of Rs 400 crore, can make a difference to the stock. So, 15% losses have turned into 4% gain into the share price.

I have been maintaining my view that, I have a positive view on Kingfisher. Any fall in the share price should be used as a buying opportunity because intentions of management are very serious. They are forced to salvage Kingfisher Airlines; otherwise all group companies will come in trouble. In the next couple of months, there will be a concrete plan which will be seen quite positive. I won't be surprised to see share moving back to Rs 30-35 and that should be the fair level for it to stabilize and trade.