Tulsian buys steel stocks; negative on sugar, ADAG names

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 gives his views on certain result candidates like Numeric Power and Hotel Leela, and other market movers like JSW Steel, IFCI and cement stocks.

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

Q: What did you make of Numeric Power Systems and what kind of trajectory do you expect on the stock from here after the details that the management gave out?

A: The market is not giving the proper valuation to various businesses at which they have been ruling. Take the case of Numeric power - market cap is Rs 250 crore and 90% of the business is uninterrupted power supply business which is getting sold at about Rs 850 crore. So these kinds of businesses are quite undervalued on the board.

Number two, minority share holder will be left at the mercy of the promoter. When the promoters are really opting to sell 85-90% of the business, I don't understand why there should be cash deal and why they can't transfer shares instead. 15% of the business can get hived off to a wholly owned subsidiary and a share of that can be given, so at least the equitable treatment is given to all. Over here, on a Rs 850 crore deal, the company will be paying tax of close to about 20-22% and then residual amount will attract 16% dividend distribution tax which is not likely to happen.

So major part of this fund or virtually the entire fund will be managed by the promoters, leaving us to wonder what minority share holders are really getting by this. May be one should wait for the stock to reach about Rs 350-400 and then get out of the stock because there is no point in comparing. So the management needs to spell out the intention of usage of that amount how they will be making use of that.

Q: IFCI is up quite a bit over the last few days, I think it has gone up some 15-20% this week. Any sense why that stock is going up to Rs 40?

A: I think IFCI is trying to catch up to other financial or banking stocks. The kind of beating which we have seen in case of IFCI, largely on concerns of defaults by promoters or maybe the NBFC funding is coming to an end. In fact, we have been seeing the value buying coming back because if you really take a core valuation of the company in the extreme situation also, I think it is not less than Rs 35-40. I think it is now returning back to those levels because huge shorts have seen remaining uncovered in the system from December series onwards which got rolled over to January and they carried on even in the month of February also. So largely it has triggered with the value buying emerging in all the financial stocks but now seeing huge short covering coming back into the stock.

Q: Hotel Leela's numbers posted a net loss of almost Rs 100 crore this time.

A: Horrible results. One fails to understand how can these kind of losses be posted because Q3 if you see traditionally for all the hotel stocks is the best quarter and if you see Hotel Leela they have the properties in Goa and in other places where the Q3 season is quite robust.

The fall could get further aggravated because we have been seeing positive bias in the stock happening for last couple of days on the news that promoters have released their pledge shares or the stake sale is there in the offering and all sort of news. So huge long positions got built up in last couple of days or so but results are really horrible.

Q: How do you approach names like Hindalco and Tata Steel where results have been bad, reactions have been slightly disparate? Which one would you have more comfort in now because Tisco despite poor numbers has gone up 6% today?

A: For last couple of months we have been seeing huge run up in the non-ferrous metal stocks. If you see Sterlite Industries, Hindustan Zinc, Hindalco, probably subdued results of Hindalco is seen as a trigger for the profit booking. But if you take the trend for last two or three days, I am seeing lot of positive bias getting built on the ferrous metal stocks and especially after the deal of Uttam Galva having acquired stake in the Lloyd Steel of about 26%.

If you take the rise in the share price of Jindal Steel and Power, JSW Steel, Steel Authority, Bhushan Steel and in fact all these ferrous metal giants, they have all been doing well. Probably that is the reason the negative result of Tata Steel is not reflected into the share price. In fact I am seeing much more upside happening in these ferrous metal kinds of stocks.

Prime picking pick in that segment would be JSW Steel and Steel Authority. Obviously because of the positive bias on the sector, probably it is better to take a shift from non-ferrous metal stocks to ferrous metal for next 15 days to one month. I don't think that for the ferrous metal stocks the rally is going to fizzle out so quickly and positive bias on two - JSW Steel and Steel Authority.