Tulsian negative on Sesa Goa and Sterlite

Below is the edited transcript of his interview to CNBC-TV18.

Q: How would you approach Sesa Goa and Sterlite Industries ?

A: The announcement of merger between Sea Goa and Sterlite with a swap ratio of 60% is a negative news. If Sesa Goa falls by 5%, then same effect or weakness will be seen in Sterlite as well.

But now there is some clarity that the company has about two million tonne of iron ore with two-three aspects involved. During monsoon season the mining operations for Sesa Goa are very low, as always seen in their dull Q2 performance.

The state government will be really keen to see that the mining ban is lifted, as it is a very big source of revenue to the exchequer of the Goa government. So, both the company and the government will be working in the direction.

There is hope that some resolution will come in next two-three weeks, and the company is able to resume mining operations. If it doesn’t happen then we can see the share settling close to Rs 150.

Q: Deccan Chronicle has seen a big hit today and the banking secretary also indicated that Canara Bank is conducting a forensic audit of Deccan Chronicle. How would you approach Deccan Chronicle and many of the financial institutions which are exposed to any sort of a liability from Deccan Chronicle?

A: I have a positive stance on Deccan Chronicle mainly because of the assets the company is owns like Deccan Charger, printing infrastructure, printing newspaper titles, intangible assets and other things.

But there is no concrete information about their liability, till last week it was known that the company has a debt of Rs 3,500 crore and today it is known that banks alone have an an exposure of Rs 3,800 crore, which itself does not clarify whether this includes the amount specifically lend by the banks against the Deccan Charger to the extent of Rs 750-800 crore by three banks which include ICICI Bank , IndusInd Bank and some other bank.

Unless the debt position is clear there will be confusion whether the debt exists of Rs 5,000 crore or Rs 3,500 crore and secondly, forensic audit itself is a very serious issue because that will ultimately result into the corporate governance violations.

If the process of Deccan Chargers sale happens in next couple of days then we will see some redemption of banks liabilities then a positive view can be taken because from hereon, I don’t see much downside. The stock can fall to Rs 10-11, but if the process of redemption starts then share can quickly move back to Rs 16-18. There are near term concerns but unless and until the process of liability redemption starts the things will remain dicey only on the stock.

Q: How much more of a delay are you expecting in fuel price hike? Do you still see that window open?

A: Three days back the tone of the oil minister was very firm; that no increase in the petro-products prices is likely to happen. Oil minister today at least said that though it is not on the agenda of Cabinet Committee on Political Affairs (CCPA), but the note has been circulated and the petro-product price hike is inevitable. In the agenda, he said that petrol will not be on the agenda as it has been deregulated. One can expect price hikes to happen in petrol, diesel and LPG in a weeks time. However, I am not sure that the government will raise price of kerosene as it is used by the people of the lower strata of the society.

Q: What is your target price on Muthoot Finance ?

A: A combination of two-three factors is driving the stock. First, till last month Muthoot used to rule at Rs 125 but Manappuram , the peer company, has risen by above 10% in last one month, so the catch up is happening.

Second, Muthoot Finance will come out with another bond issue which will increase their earning potential going forward and the positive stance that is being taken on gold finance companies due to increasing gold prices and no risk of NPA. These factors are responsible for good upside.

On fundamental basis, Muthoot is likely to post an EPS of Rs 26-27 for FY13 on a conservative basis and if they are able to infuse further capital in the second half the EPS can rise to about Rs 28-29. After considering all these factors, the share is even now ruling at a PE multiple of 5, while Manappuram is ruling at a PE multiple of 6. Traditionally, Muthoot has always been ruling at 10-15% premium. So, I will give a PE multiple of maybe 6-6.5 and that makes the share to move about Rs 170-175 in next couple of months.

Q: Karnataka Bank is down 5.5%. There is a board meeting scheduled on the 14th September for rights issue. Is that the reason why the stock is under pressure or any other reason?

A: Generally, people who invest in the stock they think that if rights issue comes in a liberal ratio of maybe 50% rights and rights are always presumed to come at a lower rate and even if it comes at 60 with all the additional getting applied then also the right issue is seen as a negative which gets reflected into the price.

Q: Has IRB finished reacting post IT claims?

A: For IRB, some weakness is still seen and the share can fall to Rs 120 which looks to be a good support because we have seeing the share hovering between Rs 120-135 because we keep getting some of the negative news which the share price is seen accepting not below Rs 120. So maybe a further fall of about 2% can be expected from here.

Q: At what point do you think Sesa Goa will become a buy because now I think its slipped to a new low today, its already at close to its 52 week low or even lower? What kind of levels are you watching on Sesa Goa now?

A: On fundamental and technical basis, to make an entry into this stock Rs 150 level looks attractive.