SP Tulsian on Jain Irrigation, realty and IT sectors

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

Q: At one point, the DVR was down 20% on Jain Irrigation . The stock itself has taken quite a knock, any news that you are aware of, of why the stock might have fallen so sharply?

A: I don’t think that there is any disappointment on the stock because it is down by about 2-2.5% which is in line with the general market. But on DVRs, there are three that got listed recently- Pantaloon is ruling at a discount of 37-38%, Tata Motor DVR discount is prevailing at 45%, and Gujarat NRE Coke has the least discount of 24%. I won’t be giving too much credence to the discount in case of Gujarat NRE. So, one can say that the acceptable norm for DVR discount is anywhere between 37-45%. If you take 40% as the discount, and Rs 120 as the base price for the Jain Irrigation share, that gives a fair price of DVR at about Rs 72-73. But since it is frozen today on the lower circuit at about Rs 95-96, I think this has to fall more and this will align, may be in couple of days, back with the Rs 75 level. Then we should really take a call because DVRs were issued on a ratio of one for every 20 shares held as bonus shares. So, this is very much in line.

If you see the volume also, it is very low for a DVR; it’s not more than 4000-5000 shares. It has hit the lower circuit on a thin volume. So it has to reach to about Rs 75 which in my view is the fair value.

Q: Today one sector which has got a real hammering is real estate and that’s been continuing for a few days now, names like Indiabulls Real Estate and HDIL continue to slide further, what is going on here because these stocks are on their way to forming fresh lows?

A: The problem with all these companies is they are not seeing any single offtake even in their bookings. The worst part is that all these developers are sitting on inventory without cutting price, thinking that probably, price cut will not serve the purpose. In fact, they have been borrowing at a hefty rate of 24-36%.

I had a talk with couple of NBFCs which are of foreign companies, they are lending to them at 25-27% interest and that interest is payable per month! In spite of that, two-three deals did not happen.

Akruti City has changed its name to Hubtown. That did not materialize with foreign NBFCs and they are passing through a very bad liquidity patch. If this situation continues, I think that is going to get reflected into the Q3 results.

If you take the case of players which are having presence in Mumbai like HDIL and Indiabull Real Estate, these are companies having projects, but they have not seen any booking. Oberoi Realty is in someway better-placed because they completed their Oberoi Splendor at Jogeshwari-Vikhroli Link Road. They were thus able to sell the property.

I think this is a pathetic state for all the real estate developers. If you see in today’s market, except for Ajmera Realty and Ansal Housing , I don’t think that any other stocks are really doing well.

Q: Patni has now reached Rs 464; How much you think will iGate management be willing to cough up? Where do you the see stock going?

A: I have been maintaining my view that there is no reason for the management to pay less than Rs 500. In fact, last acquisition for the Patni brothers was made at Rs 504 followed by the open offer. The management has indicated they won’t be able to cough up more than USD 250 million this time, which works out at about Rs 450 per share. Phaneesh Murthy was quoted as saying it won’t be feasible for them and that they may have to rethink if the discovered price gets beyond that.

But I wont buy that logic. iGate is serious in going for the delisting, and going by the past track record, the delisting price will get discovered somewhere around Rs 500 because I don’t think that much of the problem will be seen in mopping up the required number of shares since the public float is held majorly by the FIIs and the GDRs. So that seems to be very much in their control.

Considering that, I was thinking that probably, it may not be able to move beyond Rs 470-475 in the secondary market. So, maybe it has reached its point. I don’t think much upside is seen here on, but the delisting should be taken at around Rs 500 per share.

Q: What is wrong with Dish TV , there is no end to the pain over there. It’s down another 7% today?

A: For last two days, it has been doing quite well because in the weekend, there was news that they got FDI permission for Rs 980 crore investment which was clarified by the management. That is just an enabling permission kind of thing, but for last two days, we have seen stock moving up by about 7-8% and entire gain seems to have got erased today. This could just be a case of profit booking where the stock started on Monday and it has gone back to the same levels. So I don’t think that on a net basis, there is any negative seen there. Even from a fundamental point of view, I don’t think that there is any negative seen for the stock going ahead, considering digitization and all sort of things. So this might be a case of fresh short selling at higher level or profit booking in last two days or so.

Q: We were talking about the stocks that corrected quite a bit from these consumer names. What is your thought on VIP and how much more downside is left for that one?

A: I was never convinced about the stock. The sole reason for my earlier view getting reinforced is the weakening rupee. When you talk to the company guys or the dealers, they say that the major components of the products are imported. They just put the tag here and that is going to hurt their margins to a great extent. Otherwise also, if you see the exit by the big investors from the stock and the kind of hammering which we have seen in all the stocks in the sector has been indicating a negative view. Apart from that, there are many other consumption stories which we kept talking like VIP industries, Lovable or maybe Jubilant Food too that I was never convinced about considering these kind of valuations.