Urea price decontrol may not happen: SP Tulsian

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Urea price decontrol may not happen: SP Tulsian

SP Tulsian of sptulsian.com, in an interview with CNBC-TV18’s Udayan Mukherjee and Sonia Shenoy, doesn’t see the decontrol of urea prices taking place as he feels that the government is not likely to get absolved from the urea subsidy burden which they are now incurring.

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Excerpts from Bazaar 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

Fertiliser secretary Sutanu Behuria had recently informed that the decision on decontrolling the price of urea would likely be taken by this fiscal. The group of ministers (GoM) will be meeting on December 3, 2010 to consider the decontrol of urea prices.

SP Tulsian of sptulsian.com, in an interview with CNBC-TV18's Udayan Mukherjee and Sonia Shenoy, said he doesn't see the decontrol of urea prices taking place as he feels that the government is not likely to get absolved from the urea subsidy burden which they are now incurring. "If you are talking of decontrol it means the entire cost of production or the selling price has to be borne by the purchasers which is the farmers," he added.

On PSU banking stocks, he has a positive bias towards Indian Overseas Bank , Dena Bank , Vijaya Bank and Andhra Bank .

Below is a verbatim transcript. Also watch the accompanying video.

Q: How would you position yourself in the fertiliser names before the meeting tomorrow?

A: Definitely, the focus will all be on urea manufacturers alone where you have to see the larger players. In the urea segment, you need to differentiate between those who use the feed stocks as naphtha or diesel oil and those which use gas. I don't think there is likely to be any positive news expected for the urea manufacturer using gas as a feed stock.

Yes, there are likely to be policy announcements in respect to the migration of the feed stocks in which maybe NFL and GNFC could be the companies which needs to be checked into. On urea decontrol, I wonder on what lines it can get implemented because right now there is a subsidy contribution to the extent of 60% over the cost of production considering even if the gas is allocated to all of them, the process may take maybe a couple of years or more.

So what will the policy in the interim period be because the government has been coming out with a policy for the pricing of urea and other complex fertiliser on a year-on-year basis. Obviously, the complex fertiliser has now changed. Broadly, there will be policy matters to be discussed in respect to the capital subsidy to be given for the migration of the feed stocks by the companies. There may also be a marginal increase in the administered price of urea, maybe, by about 50 paise per kg.

If you are talking of decontrol it means the entire cost of production or the selling price has to be borne by the purchasers which is the farmers. I don't think that is likely to happen when one can say that the government is likely to get absolved from the urea subsidy burden which they are now incurring. These are the broad parameters on which the policy announcements are likely to happen.

Q: There was some news of a recapitalisation plan in place for PSU banks. How do you think they will react today and which would your favourite picks be?

A: This is quite positive. It all depends on the quantum which will be given to each bank which we have been hearing it runs from Rs 300 crore to Rs 2,000 crore. I have been maintaining my positive bias on all the midcap PSU banking stocks especially, Indian Overseas Bank, Dena Bank, Vijaya Bank and Andhra Bank.

I am bullish on these four banks where you see the fundamental value also increasing or even the effect of capital infusion into the bank. If you take a call on other banks like Allahabad Bank, UCO Bank or Syndicate Bank, even they look quite good, considering the renewed interest we have been seeing on the banking sector, especially in the midcap PSU banking stocks.

Q: The two PSU stocks which did very well yesterday were HMT and ITI. Which one would you pick of the two?

A: Maybe the revival or the upmove we see in both these stocks, these kinds of movements come maybe two-three times in a year on some news largely based on the capital subsidy or the capital infusion which are largely going for financing the loss of both the companies. This process has been going on for the last two-three years and the government has not been able to turnaround the fortunes of these companies.

Specifically on HMT, they have six divisions and they have been trying to sell some of the divisions but they have not been able to find buyers. All these upmoves are more of a trading bump. Maybe, after seeing huge trading interest remaining for 10-20 days then the share sharply corrects by 20-30%, maybe those who have a large holding try to have 2-3-4 trading upmoves in a year and try to make about 30-40% on their holdings. On a fundamental basis I am not comfortable on both the stocks.

Q: What have you made of IOC 's possible FPO price and how much more do you think this stock could surge?

A: I am surprised by the announcements made by the chairman of the company hinting at a price of Rs 450. The price band has been announced just a couple of days before the opening of its issue. Maybe that could be just his estimation but I don't think that announcement was really warranted at that stage because that throws a wrong signal by creating a speculative element in the market. It could be that we have seen sharp upmove in the share price by about Rs 40 yesterday.

Q: In a market like this, if you had to bargain hunt at this point in time and pick up maybe four-five stocks for us for the medium to longer-term what would they be, anything at the top of your mind?

A: I agree that there are good opportunities but the problem which I have realised now seeing the carnage in the last week that people get too panicky. I don't think they have the vision because if you give them a time horizon of 12-months and in that timeframe if you advice or recommend some stocks for buying they get panicky with the kind of fall which they have seen.

If I need to pick and choose it has to be sector specific as there can be many stocks. To give an example, suppose if I start with the cement sector, I have been maintaining my positive view on Binani Industries because they have been initiating the delisting of Binani Cement. The logic behind this is that that could be one stock which looks quite interesting.

In the entertainment and media sector, Crest Animation looks quite good with a time horizon of 12-months because their first animation film 'Alpha and Omega' did quite well, plus they have been very aggressive in making animation films.

On railway stocks, generally we see that as we approach the railway budget we see renewed interest coming in the market on railway stocks where there are very few players. Unfortunately, Texmaco because of the restructuring move, their main company which is making wagons is not available for trading. So in this segment one can look for Kernex, because anti-collision devices (ACD) orders are again quite overdue and government should come out with the order of ACD's to be awarded in the favour of this company.

It also could be in the fertiliser space with a proxy to sugar and fertiliser and my choice could be EID Parry and maybe if I need to choose one in the auto ancillary it could be Tube Investment.