SENSEX NIFTY
Aug 21, 2012, 06.09 PM IST | Source: CNBC-TV18

UB group stocks, Heidelberg top Tulsian's bets

Stock-analyst SP Tulsian explains to CNBC-TV18 that long positions can be created on all UB group stocks as he estimates that the proposed sale of stake to Diageo is inevitable. He is also bullish on mid-cap cement stock Heidelberg as the company has adequate capacity-addition initiatives that will be operational in the next three-to-six months

Stock-analyst SP Tulsian of sptulsian.com, explains to CNBC-TV18 that long positions can be created on all UB Group stocks as he estimates that the proposed sale of stake to Diageo is inevitable.

He is also bullish on mid-cap cement stock Heidelberg as the company has adequate capacity-addition initiatives that will be operational in the next three-to-six months.

Below is an edited transcript of the analysis on CNBC-TV18.

Q: What is driving tyre stocks up?

A: For the past one week, the tyre stocks have been on the rise. It maybe attributed to Ceat Tyres moving up on announcement of good results. A reduction in global and domestic rubber prices could be another reason for this positive bias on tyre stocks.

Q: Hindalco which is now languishing at Rs 110-111 was very weak last week as well. Do you think the stock will fall further?

A: The stock maybe reaching its bottom and I don't think there it will fall any further. All metal stocks such as Sesa Goa , Sterlite and Jindal Steel and Power , are holding on with a marginal gain of 30-50 bps or 1-1.5%. With Hindalco having reached close to the bottom-level, the shorts built up in the system could act as a trigger for the stock to move up. So maybe a couple of rupees lower from here and the stock should bottom out.

Q: What's the problem with Jain Irrigation ?

A: Again, the problem is due to a drop in the top-line. The Q1 results have not been very encouraging. I don’t think that there is any complaint regarding interest account, though it has increased sequentially and has already crossed Rs 100 crore.

The problem lies in the growth in top-line because the raw material cost is intact. The interest cost has marginally gone up. Other expenditure is more or less stagnant.

The company is unable to increase its top-line on the supply of micro-irrigation or specialized-irrigation equipment. Another reason might be that the EBIT or EBITDA margins in a few industrial product segments are quite low.

So, the market has expressed its disappointment regarding the company's inability to reduce its interest burden. The market now hopes that probably after September, there will be a reduction in the company’s sundry debtors, which will bring down the interest cost.

Q: UB Group stocks seemed to have lost their way somewhat today. Kingfisher is down; UB Holdings and Mangalore Chemicals have all corrected from last week's gains. Any fears that the hopes of a deal are fading or is this just profit-taking in some of these stocks?

A: It looks pure profit-booking, especially on two stocks - Mangalore Chemicals and United Spirits . I don't think that there is any kind of fear, because the deal has to go through. If there is a complete restructuring of the group including the Kingfisher Airlines, the maximum mobilisation of funds will come from United Spirits.

Regarding United Breweries , I don't think that the talks for sale of stake are now expected to happen with a foreign partner. So United Spirits is the only stock which promises adequate funds.

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