IFCI has stiff resistance around Rs 40: SP Tulsian

SP Tulsian, sptulsian.com feels that the upside in IFCI should get capped at Rs 40.

Tulsian told CNBC-TV18, “In IFCI - there are three news flows which are coming in. One, the government may go for  stake sale. Second, the banking licence and third is merger. If I take this stake sale -if one goes by the resolutions or  the decision having taken by the government, which has been affirmed by the president of India couple of years back   that all the government companies will be having a government of India stake of 51 percent."

He further added, "People have been talking of 2010 when IFCI was referred for inducting a strategic investor, at that  point of time there was no government of India holding, it was just a non-identified promoter company or a zero stake  of promoters. But now with the conversion of Rs 923 crore convertible debenture and optionally convertible debenture,  the government is now holding close to 56 percent stake in IFCI. I don’t think at this point they will really think of  inducting a strategic investor by which the government stake can fall below 51 percent."

"Considering the financial working of IFCI for the last couple of years, I don’t think they have the qualifications or the  quality of asking for a bank licence. With the banking licence now, there are some thoughts that RBI may think of only  releasing four or five licences maybe on a regional basis, east, west, north, south and central part, which will largely go  to the private sector. I don’t think that public sector, because since now, IFCI is a public sector undertaking will really  be considered for banking licence."

The merger, which in my opinion seems to be the most optimum move on part of the government to merge this with  IDBI, which is also being contemplated. But if one sees the valuation on a book value of Rs 32, share is ruling at a  price to book of 1.21-1.25 and with earnings per share (EPS) of less than 4 it is ruling at a PE multiple of 10 plus. I  don’t think there are any kind of possibilities of this corporate developments, which is being speculated happening in  the stock price."

"Whenever we have seen in the past, the share has moved with these news flows, it has swiftly corrected back by  about 20-30 percent. This time also, I am seeing that the stock should get capped at about Rs 40 and I don’t think that  these expectations are really justified."