SP Tulsian on power & infra stocks, GTL, Aptech

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SP Tulsian of sptulsian.com spoke to CNBC-TV18 about stocks in news today. Check out his comments.

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

Q: What did you make of the GTL restructuring announcement and how much would you give those stocks from here?

A: This was expected. I don't know why this restructuring has really been holding on and now we get to hear that personal guarantee of Rs 2,500 crore has been given by the promoter. I really wonder whether that personal guarantee will serve the purpose because ultimately, all the lenders have to fall back on the assets of the company which are, in my view, quite adequate. If you take the 30,000 towers which are now held by the company, the value of that can be taken at about Rs 12,000-12,500 crore. That's the least valuation.

The exposure of all the lenders put together is somewhere around Rs 9000-10000 crore. In fact the transfer of ICICI Bank loan from GTL to Chennai Network (CNIL) are all just falling flat on principal security.

Nonetheless, this is very good news for both the companies- GTL Limited and GTL Infra . GTL Limited has very low market cap of close to Rs 300-350 crore while GTL Infra has a market cap of about Rs 800 crore.

So one can expect that GTL will move to about Rs 55-60 and GTL Infra can move to maybe Rs 14-15. That means there is good upside from hereon because as I said, after knocking off the debt of about Rs 10000 crore, they are left with asset valuation of Rs 2500 to Rs 2800 crore.

So the market should logically give a valuation of about Rs 1500-1800 crore of both these companies put together on a market cap basis which translates into price of Rs 55-60 for GTL and about Rs 14-15 for GTL Infra.

Q: How do you see this auction of Rakesh Jhunjhunwala's stake in Aptech going and what kind of value do you see being realized?

A: This is an excellent move. Having been initiated, by whatever source-based information, with the timeline having set for May-December 2012, I think there will be quite good interest by potential acquirers in the company. This is for the simple reason that as of 30 September 2011, the company has cash of about Rs 120 crore. So the company is potentially debt free.

If you see the 22% stake held by this company in the Chinese career education company they get an annual dividend of about Rs 40 crore from there. In fact, in six months this year, they have got a dividend of Rs 51 crore. So I value that company at Rs 350 crore at least, that brings the total worth to Rs 470 crore.

Apart from that, they have 1300 centers of which 850 are in India. Valuation given by any potential acquirer should in my view be at least Rs 250 crore because all those 1300 centers are giving a collective revenue about Rs 200 crore. So even if I give a multiple of one time to the topline, the collective valuation makes for about Rs 700 crore.

The company sitting on equity of Rs 50 crore gives a valuation of close to Rs 350-360 crore. So there is a clear cut case of an appreciation of about 60-70% since one can expect that the potential acquirer may acquire the share up to Rs 125-130 also.

Taking the open offer factor and factoring everything, the share can move to about Rs 100. That is a least I am expecting, but the only condition is that process of divestment or the stake sale must get completed within the timeframe by May 2012. Nonetheless, I see good value in the stock at the current level.

Q: The worst affected have been the capital good names, but even independent power companies NHPC s and JSW Energies have had very brutal falls. Would you be buying any of them?

A: I won't be placing NHPC in that category being a hydropower player. I am maintaining my negative view because of high debt of about Rs 11000-12000 crore and high equity of Rs 12000-13000 crore.

Now if you look at the thermal power projects, you can include Adani Power , JSW Energy and Indiabulls Power . I don't think Indiabulls Power has really commenced any capacity and there are many other integrated players like GMR , GVK , Sterlite , Jindal Steel & Power - all of them are facing a big problem there. In fact, there is no sanctity of long-term contracts for the feedstock having entered by them for procurement from the South-East Asian countries, and that is putting pressure on them. Tata Power is a case in point where they have provided impairment loss of about Rs 800 crore for their Ultra Mega Power Projects (UMPP) at Mundra.

On one hand they have fixed Power Purchase Agreement (PPA) with the State Electricity Board or with the government for 70% of their generation capacity and on the other hand, raw material cost which was estimated earlier at about Rs 1-1.10 per unit as coal cost, that now seems to have moved to Rs 160-170. Also, there is no easy availability of the feedstock.

Taking all this into consideration, all power stocks, especially the thermal-based ones, are doing very badly and I don't think that there is going to be any relief. You are not going to see any escalations in the PPA in the near-term and you won't be able to operate your plants on an economical basis, going forward. Naturally, the cautious to negative view remains on all these stocks.

Q: From the beaten-down infrastructure space, which ones would you plumb for the biggest rebounds if it happens?

A: It has to be L&T , and if need to take one more stock in that space, probably, I will go with JP Associates . I don't think you have comfort anywhere else. I may talk of the smaller ones like IVRCL that looks to me as a good buy, provided you have a 12 month horizon. Suzlon too, but the moment you talk of all these stocks, it irritates the traders as well as investors. So no point in taking calls on those stocks, but yes, L&T and JP Associates looks safer at least size-wise and level of operations to take a buy call with any up move expected in this market.