Realty, Coal India top Tulsian's bets

Stock analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that realty stocks have begun to attract attention as real estate companies monetise and consolidate their assets.

Tulsian is positive on Coal India as the penalty, in his opinion will not be too severe and that the company will be able to easily meet the current requirement of coal.

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

Q: What is your initial analysis of Balrampur Chini's results?

A: The results are strange and disappointing. In the March quarter, the company had a turnover from sugar was Rs 520 crore with an EBIT of Rs 80 crore.

For this quarter, the turnover is close to Rs 580 crore with a negative EBIT of Rs 23 crore, resulting in the positive 16% EBIT turning into an negative EBIT of  4%, which is really very strange as Balrampur Chini carries an inventory of Rs 2,000 crore as on March 31.

There is a disparity between the price prevailing in Uttar Pradesh and southern India during the June quarter and for the first time, sugar from southern India has been fetching higher realisation by about Rs 1 per kg.

But it is very strange to take a call that the realisation of the sugar in the June quarter was lower than what the company realised in March because if you value stock at cost or market price, whichever is lower as on March 31, the company is carrying an inventory worth Rs 2,000 crore, obviously a lot was expected from the sugar segment, it is very strange.

There is a total shift of more than Rs 100 crore - from the Rs 80-crore positive EBIT, to about Rs 23 crore in negative EBIT. Though, there have been seeing estimates of a PAT of Rs 20 crore posted by Balrampur Chini given by various broking houses, I expected that to happen anywhere between Rs 45-50 crore.

Comparing the realisation with Triveni Engineering is futile. If you take an average realisation even at about Rs 29 - 31 for the quarter, though it is very difficult to take a call, and even if they have sold about 20 lakh bags of sugar in that quarter, it is very disappointing.

The only saving grace is the inventory worth Rs 1500 crore after having sold sugar worth Rs 500 crore in the June quarter. I hope that the company has a better realisation of Rs 33-34 in this quarter and I expect the profitability for the September quarter to be quite good, But its a big disappointment and surprise from the sugar segment.

_PAGEBREAK_

Q: Oil ministry sources have indicated that the Reliance management has approved the D6 budget for FY10-12 and Reliance has agreed to a CAG audit. What do you make of the comments from the oil minister assuring administrative support to hike KG-D6 output?

A: There has been a disagreement in respect to the CAG audit by Reliance Industries. RIL agreed to a financial audit but not to a performance audit, by CAG.

The oil ministry has at least budged from its previous tough and adamant stance that the company submit to a CAG audit. The oil ministry does not have the power to overrule the CAG and for that reason, the present development is definitely a positive sign. But unless something concrete happens, I won’t be taking a call.

Unless there is clarity with respect to the views of the oil ministry and the CAG, I don't think it can be concluded that the dispute has been resolved.

Q: What do you think of DLF which is up 2.5% despite tepid results?

A: I think the market is now increasingly banking on monetisation of the assets by the company based on news of the conclusion of a deal to sell its Mumbai property for around Rs 2,800 crore. A major portion of this will come into the company's coffers immediately. Then there is the sale of Aman Resorts which is likely to offer Rs 1,800 - Rs 2,000 crore.

I am not referring to the sale of the wind farm or the golf course. So, in spite of subdued first-quarter results, the market has increased expectations on probable reduction of debt which was not possible during FY12 in spite of the assurances by the management.

Since the announcement of the Q3 results, the company is hopeful of being able to reduce debt. Now I think that process will start and maybe in the next couple of months, the company should be able to reduce it by Rs 4,000 to Rs 5,000 crore. So this seems to be a major trigger.

The overall view on real estate stocks is positive. So, the main reason for DLF remaining firm could be the sale of assets which is likely to happen in the next couple of months.

_PAGEBREAK_

Q: Do you think the penalty levied on Coal India will have a negative impact on the stock?

A: It is definitely a positive for power stocks. But the fine has been levied at a slab of 65-80% of 1.5% penalty which was earlier contemplated at 0.1%. I think this will not be seen too severe because whenever the penalty was increased by 5-40%, it has fallen to the below-65% level.

This is unlikely to happen because the company will not have to import more than 15-17 million tonne to meet demand for the next 18 months. So, there is no question of Coal India being unable to meet its 65% threshold target. I don't think the penalty will be too severe. Though there were such apprehensions, I don’t see the penalty having a negative impact on the stock.

_PAGEBREAK_

Q: What do you make of the news regarding Standard Chartered IDR and how would you approach it now?

A: Definitely, my view is negative. It is difficult to take call when a regulator is initiating a probe into the price. The news regarding the IDR is definitely a negative for the stock.

Q: How would you approach a telecom stock like Bharti which is scheduled to announce results tomorrow?

A: There is a lot of controversy and confusion regarding the reserve price. It all depends when the auction really occurs on the ground. I think a wild card entry is expected by Reliance Industries and if that happens, one may find the reserve price of Rs 14,000 crore quite reasonable.

The government is planning to extend the auction deadline to January 28 2013 and I hope the Supreme Court will grant allow the extension. Overall, I don’t think that is really such a big problem for telecom stocks. So investors can take a neutral view and in respect to the results, I do not have any expectations of a positive surprise from Bharti’s results.

Q: What do you make of some of the ADAG stocks? Do you think the rally is just on account of the high beta trade or is there any fundamental reason for these stocks to move up in the last few days?

A: With the group yet to announce results, investors should take a cautious view, especially on Reliance Capital and Reliance Communications. Reliance Infra could get support with its results and the momentum may continue. But the main reason for the rise is largely because of the high beta nature of all the stocks and because there is no other trigger for Reliance Power.

The stock has swiftly corrected whenever there is a good upside. So I will keep my outlook positive purely on the character of the stocks. But a cautious view ahead of the results is called for especially on Reliance Capital if not on Reliance Communications.

Q: What about IRB Infra which is down 9.5% with heavy volumes?

A: I have absolutely no idea. It must have been caused by some negative news.

Q: How would you expect the oil marketing companies to perform this quarter around?

A: It is always the same story. All the oil marketing companies have been bludgeoned for the past three quarters because they are at the mercy of the government.

No cash subsidy has been received from the government and upstream companies like ONGC, Oil India and GAIL are likely to operate on credit. To that extent, the under-recoveries will get adjusted. Overall, all three companies are going to report losses.