Tulsian on Reliance, Essar Oil, S Kumar and sugar sector

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 Reliance BSE | NSE 29/05/12 Are Mutual Funds betting on Reliance? Other Stocks in this news Essar Oil | S Kumars Nationwide | Alok Industries | Arvind | Siyaram Silk Mills | Shree Renuka Sugars | Bajaj Hindusthan | Reliance Communications |

SP Tulsian of sptulsian.com spoke to CNBC-TV18 about certain stocks that have been on the move of late.

Below is the edited transcript of his comments. Also watch the accompanying videos.

Q: How do you see Reliance moving next week?

A: Probably it may not move beyond Rs 800. There are lot of variations with the kind of Q3 PAT, which is projected, anywhere between 4,500 and 5,200 crore. I am expecting it to be at around Rs 5,200 crore, which will not disappoint the market so much, but the absolute price at which the buyback is going to be made and what is getting provided, will ultimately give the direction to the share price.

Like I said, I am not expecting it to move beyond Rs 800. After results and this buyback announcement, I am expecting the share to settle anywhere around Rs 750-760.

Q: Has the worst of the tax judgement impact been priced into Essar Oil 's stock price or could it fall more?

A: It can fall further because there has been no clarity on the financial position. The company is still relying on the review petition, which they intend to file in the Supreme Court. I don't think that the review petition response has been very good. Generally, the review petition doesn't give any relief.

The clarity is not there on the time schedule because the company has been saying that they will sit with the Gujarat government. But if you need to pay that kind of money and considering their present situation - they have a debt of Rs 22,000 crore and cash of Rs 4,000 crore that too with capex in the pipeline from 14 million to 18 million tonne. So taking all those into account, I am expecting share to fall to anywhere between Rs 40-42.

The telecom scam hearing is also lined up on January 27. That will also be seen negative for the stock.

Q: S Kumars has begun to see a lot of trading interest. It's up nearly 18% this week. Any newsflow on it or is it just rising with the rest of the midcaps?

A: It's just rising with the other midcaps. It has corrected to Rs 25. I don't think that kind of valuation is justified when you have an EPS of close to about Rs 13-14. The main concerns on the stock has always been the margin call pressure and all that which has continuously been denied by the management that they don't have any sort of that thing and their entire stake is pledged with the bank as collateral.

So maybe considering the full valuations, taking a fundamental call, I don't think that this kind of valuation is justified. In my view, it should catch on and at least should move to about Rs 36-40 when you compare it with maybe the stocks like Alok Industries or maybe Arvind - though they are not the real comparison - maybe the stocks like Siyaram Silk Mill or Raymond and all sort of things.

So it may catch on further from hereon by about 20% in a month or so.

Q: Is the rally done for the sugar sector or is there more upside?

A: I am holding my negative view for UP-based sugar mills but the only positive call, which I am taking, is on Shree Renuka Sugar . For March quarter, Bajaj Hindusthan is likely to provide an exceptional losses of about Rs 60-570 crore. Since Bajaj Hindusthan is the largest sugar mill, the similar kind of provisions will be made by the other sugar mills.

That will be a big dampener that this provision is not going to come in this quarter's result for quarter ended December. However, that is all going to get reflected in the quarter ended March. Therefore, I hold a very negative view on all the UP-based sugar mills, only exception being Shree Renuka, where I have a positive view.

Q: How soon do you expect to hear any news now on Reliance Communications ? Now is talk about overseas listing. Does it look like something is going to happen soon?

A: I am only banking on the tower hiring by Reliance Industries and I think that is likely to happen by this month end. I think all of them are busy. Reliance Industries is busy in their quarterly and share buyback. So probably in next week, next Friday, we may see some announcement.

I am not relying too much on the Flag Telecom IPO or maybe tower stake sale happening now. The immediate news, which we must keep an eye on, is the hiring of the towers by Reliance Industries . We must see what that will take the tenancy ratio and what the terms of hiring by Reliance Industries are. So that is likely to happen maybe in next ten days or so.

Q: Do you expect a big reaction to any announcement of the Reliance Capital deal on the asset management side?

A: In fact, I am negative. They have been projecting this asset as a very rich asset. I am not prepared to accept the argument of 5% valuation being given because even if you take Rs 80,000 crore as their AUM, of which Rs 50,000 crore is into debt and Rs 30,000 crore is into equity, I have my doubts at 5% of the valuations.

Second, even if they shed 26% and even if they get Rs 900 to Rs 1,000 crore, because in the past when they have divested their stake in the insurance business they got Rs 2,700 crore, you have not seen that fund getting utilise to repair the damaged balance sheet. They are already sitting on debt of Rs 21,000-22,000 crore and you keep on shedding your stake in the prime business and what you are going to do with that, realising Rs 900-1,000 crore can you repair your balance sheet, which has a debt of Rs 21,000-22,000 crore.

I don't think that positive effect can last on the share price of Reliance Capital even if this deal happens which is taken at a maximum valuation of Rs 1,000 crore for 26% stake for which I have my reservations.