Don't trust reports; Bet on Jet, SKS, Apollo Tyres: Tulsian

Stock analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that most of the reports submitted by investment bankers or global broking houses are not credible as they state conclusions that are sensational and are bereft of any in-depth analysis.

Tulsian advises investors to bet on Jet which has posted very good results and is poised to reap rich rewards on the clearance of the FDI in aviation. SKS Micro comes second on the analyst's radar on positive announcements from the company. Apollo Tyres ends the list on hopes that it will follow suit on the entire tyre sector posting good results. Below is an edited transcript of the analysis on CNBC-TV18. Q: Would you book profits if you had shares of MMTC (Metals and Minerals Trading Corporation of India) and the Dredging Corporation of India Limited? Do you expect the divestment to be implemented and perhaps continue to be long on both stocks?
A: I will go for profit-booking in both stocks. The market cap of MMTC is at Rs 75,000 crore. The company had an EPS of about 30 paisa for FY12, so one can conclude that the current rate of the PE multiple is ruling at 3,200 times.
The price of the stock is positive largely due to 15-20 bps floating stock in the market with 99.6% held by the government. Even if the government reduces its stake to 90%, a realistic realisation could be more than Rs 200 - Rs 250 per share. But because of this very low float and a strong trading grip, the share has moved up.
Traders one can look at a price of Rs 845-Rs 850, but this is not the stock for short-term investors or those who want to take a call on their investment.
Similar is the case with Dredging Corporation. Though there is an absence of any inflationary element in the share price, the company's financial performance is not impressive. So whenever there is a surge in prices of shares of this kind, it should be used to book profits by investors. Q: What do you make of the Veritas report on the entire Indiabulls Group after today's fall in most of stocks from the real estate, financial services and power sectors? How do you expect these stocks to move?
A: I do not want to name the reports released by investment bankers or global broking houses. I find these reports to be too sensational. In the last four-to-five years, the Indiabulls Group has issued preferential allotments initiated restructuring and shut down businesses.
These processes are bound cause the goodwill on consolidation or the net worth of one company to merge with the resultant company or maybe with the restructured company. The points raised by the Veritas reports are aimed at sensationalisation and are not credible. Q: What do you think about Bharti-Airtel's results and how much lower will the stock fall?
A: The results have been worse than expected due to the announcement of the base price of the 2G auction. This negative financial performance, I think, will cause the rating of the entire sector to fall further. If the results were not so bad then it would have seemed that the effect of 2G auction reserve price was not too debilitating. But with the rising pressure of interest costs and the pressure on margins, the results have been definitely much poorer than expected.
_PAGEBREAK_ Q: What is your take on Aban Offshore's results?
A: The initial results are dull due to the drag of the interest burden. The company has a huge debt of Rs 12,000-Rs 13,000 crore in its books. Another negative is the absence of replacement of one of the rigs that were destroyed in an accident. Overall, the results are bad and I don’t think the reason is due to any exceptional event. There maybe volatility of Rs 15-20 in the stock. Q: SKS Microfinance and Jet Airways have been doing well of late. Do you think the upward momentum in either or both of them is intact?
A: I maintain my positive view on SKS Microfinance. All the announcements from the company indicate that the company is back on track. I think that the price-level of Rs 90 is a strong support and any fall, even at the current rate of Rs 95, bodes well for with longer horizon of at least two-to-three months and a target price of about Rs 120.
Regarding Jet Airways – it all depends on the FDI clearance from the government. Definitely, the Q1 results have been quite good. We may not expect the bottomline to get in the black for Q2. But the situation has improved now for the airlines industry largely because of the exit of the Kingfisher Airlines. The aviation sector is now shared by Indigo, SpiceJet and Jet Airways. Investors can buy Jet at a lower level of Rs 360-365 where it qualifies as a good trading buy. Q: How did you read GVK Power's results?
A: The results are very bad. The road-project portfolio of both GVK and GMR is very flat and the improvement in the airport business is largely being offset by interest costs.
On a y-o-y basis, GVK's interest expenses where were Rs 68 crore in the same quarter of the previous year, have risen to about Rs 180 crore. It is difficult to expect the companies to perform well with this increase in interest burden. There has been marginal improvement in the power business on the availability of gas.
Overall, the performance has been very bad largely because of the increase in the interest cost and the income tax liability of Rs 22 - 25 crore which has increased the net loss for the quarter. Q: What do you expect from Apollo Tyres which is to report earnings tomorrow?
A: All the tyre companies have posted very good results- whether it is Goodyear, a smaller company like Balkrishna Industries or MRF. I expect Apollo Tyres to post good results. Investors can maintain a positive view on the stock.