Tulsian evaluates ADAG stocks, sees no fundamental upside

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In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shares his evaluation of the Reliance ADAG group of companies post Anil Ambani's statements yesterday. He says the companies under the group have a number of intends but sees no 'concrete or material progress' and hence, says the rise and fall in the stocks is expected.

"As positive statements come in and you see positive up move in the stock prices, however, it does not last for a very long time and fizzles out soon," says Tulsian. Further, he says the upward move seen is more of a short covering. "I do not think there is any fundamental upside or conviction in any of the analyst to take a call on these stocks," he added.

Below is an edited transcript of SP Tulsian's interview to CNBC-TV18. Also watch the accompanying video.

Q: What did you take away from Anil Ambani's statements as the group stocks were up yesterday but today they are down again about 4-5%?

A: All their statements came individually for each company. There are a number of statement of intent - for Reliance Capital , there is the bonus issue and special dividend, in Reliance Power there is no problem in terms of the gas availability, Reliance Infra for the next six months will be starting many projects and with respect to Reliance Capital whether they want to start a bank, I don't think there is any concrete or material progress seen or expected by the market.

Reliance Power's Samalkot projects 2400 megawatt is likely to get commissioned in the next six months but the question is on gas availability. We have recently seen Reliance Industries statement that they are not expecting the gas production to get ramped up by 2014. We do not know whether 2014 means January or December and if that is a situation, the sanctity of that statement is unknown.

Reliance Capital's special dividend bonus announcement comes with pathetic Q1 results.  I do not know the meaning of announcing the bonus or the special dividend for Reliance Capital or Reliance Infra. As these kinds of statements come in and you see positive up move in the stock prices, it does not last for a very long time and fizzles out soon.

After the four AGMs, all the shares have seen positive upside move but after couple of hours, we have seen correction in the second half itself. These statements are not too relevant for the market. Structurally, all the shares have been forming the lower bottom. The up move seen is more in the form of technical up move or short covering. I do not think there is any fundamental upside or conviction in any of the analyst to take a call on these stocks.

Q: There is some talk of global sugar price being under pressure, do you foresee lower levels on some of the sugar names?

A: There has been lot of pressure; white sugar fell to USD 630-640 dollar. I don't think that they will fall further because USD 600 maybe taken as the base for white and maybe 20-21 cents will form a base for the raw but the prices have corrected and the worse affected in this will be Shree Renuka Sugar .

I am unable to understand the logic of all our domestic sugar play responding to this kind of fall or rise, whether it is Balrampur Chini , Bajaj Hindusthan , Sakthi Sugars or maybe EID Parry because they are not exposed to this kind of global volatility in the commodity prices.

We have not seen much correction in our market because there has been prevalent gap of about Rs 6 per kg between the domestic and international prices. Hence, all other stocks except Shree Renuka is just moving inline with this volatility which has no meaning or no fundamental reason but for Shree Renuka it is a serious loss. Despite overproduction expected in Brazil to about 32 million tonne, this kind of fall is negative for the sector. Sugar has been showing this kind of volatility and that before it touches USD 600 it can move back to USD 700 plus for white sugar, which will again see the up move coming in the share price of Shree Renuka Sugar that can take it pass 60, maybe in next week to ten days.

Q: Petronet LNG has been one of the big outperformers in this phase but over the last two-three sessions there have been bouts of selling which has got it back to Rs 155. What is going on?

A: Until last week, this stock was seen as a very strong stock in fact in August carnage it held that Rs 175-180 level and post Q1 results, lot of hopes got build-up on this. We have seen long trading positions getting carried forward in July, August and in September series. However, some profit booking may have happened, in fact the liquidation of long positions have started happening and maybe, that is largely due to the profit booking.

I don't think that one can attribute this as fundamental weakness for the stock because that will get reinforced or indicated more by the Q2 results. However, this is just a temporary profit booking mainly in the F&O segments and it has been ruling in that range.

Maybe with the expiry in October series, we will see the stock moving pass Rs 165 and continue to maintain the trading range of Rs 160-180. Hence, those who want to have longer time horizon on the stock from a trading perspective can go long in October series in this stock, at current levels.

Q: Stocks like Coromandel and Excel Crop Care have seen big surges. There maybe a plan to be put in place for export of Endosulfan. How much of an upside do you see on these stocks from here on?

A: This is more of survival for Excel Crop Care because if you see 35% of turnover has been coming from that. The company's FY11 results have taken a beating because they have made a provision also of the stock held by them. For 4-5 months they have stopped the production. I don't think it is too material for Coromandel because for their product mix, they have any small component of Endosulfan.

The committee which has being appointed by Supreme Court has given a go ahead and that was expected because globally five years have been allowed to phase out this product. Hence, there was no reason for Endosulfan to get banned in India. Going by the global standards, this has come as a big relief because Excel Crop has 35% of its top-line coming from that and they have been deriving good profit margins. Although the stock has taken a good upside today but it has the potential to move to Rs 190- to Rs 195.

For Coromandel it won't be too material but they have larger contribution of top-line, bottom-line coming more from the complex fertilizer very less from the Endosulfan.

Q: What are you expecting to see on Jain Irrigation because it got sold off quite a bit and today it has seen an up move. Is this is a good time to buy the stock?

A: For last six months, the stock has been under extreme volatility at two end; it falls to as low as Rs 135-140 and once starts moving up it goes as high as Rs 175 to Rs 180. After seeing a bottom of about Rs 135 in this carnage in last week and now witnessing the move up, on a fundamental basis there were no issues when it was going as low as Rs 135 or when it was going as high as Rs 175-180. Hence, technically, the share has leg to at least move pass Rs 170 at least in October series, so this can be taken as a technical buy with little long-term horizon. It has to be a deep stop loss of maybe 2-2.5% with a time horizon of at least one week or so.

Q: What is your take on Sesa Goa ?  

A: The negative news for the company is all accumulating together. The existing ban in Karnataka has been a dampener. This also will add more woes to the company and then the Q2 performance which we will be seeing which is always the dull results, So maybe in the 15-20 days when the result for Q2 will be out that will add further pain to the share price.

 

I won't be surprise if it corrects to as low as Rs 180. The Cairn Vedanta deal where they will be infusing huge amount for 20% stake will further take the company in from cash surplus to having debt in their books. In the next one month, we will see the difficult part of the negative news lined up for the stock.