Tulsian of sptulsian.com explains to CNBC-TV18 that the power sector rose to the occasion on reports of a government bailout package. The stars of the sector, Tulsian says, are Adani, Tata Power and GVK Power.
In his analysis of the day's trading on CNBC-TV18, SP Tulsian of sptulsian.com explains that the power sector rose to the occasion on reports of a government bailout package. The stars of the sector, Tulsian says, are Adani, Tata Power and GVK Power.
Below is an edited transcript of the analysis on CNBC-TV18. Also watch the accompanying video
Q: What are your thoughts on Hindustan Construction? The company plans to sell non-core assets to raise funds and also restructure Rs 3,500 crore of debt.
A: Any kind of positive news such as monetisation of non-core assets and debt-restructure is always well received by the market especially for a company under stress.
But my call on Hindustan Construction is not very positive. Looking at the the long-term debt of Rs 4,800 crore and short-term debt of Rs 2,500 crore, excluding the trade payables liability, the total debt is at a significant amount of Rs 7,000 crore.
Though there are positive new reports flows on CDR being admitted in the last week of March 2012, the final approval is awaited.
It outlook turns gloomy, despite piecemeal reports of Rs 850 crore in Lavasa being restructured or rescheduled, when one views the consolidated picture of the company.
The source of HCC's problems lie in its subsidiaries, especially Lavasa. So one has to understand what kind of non-core assets are to be sold looking because I don’t think any exist in the case of Lavasa where a big parcel of land can be monetised.
Can that really significantly generate an amount of Rs 500 crore which will really provide a breather?
All these factors raise a question mark on the share. But yes, in the short-run bits of positive news does infuse some confidence into the stock as seen today. So maybe at Rs 22-23, the stock is likely to invite profit-booking. It is risky to enter this stock from an investor's point of view at the current level.
Q: Do you have a similar theory for Suzlon as well? The company plans to raise loans to refinance its FCCBs. The stock fell in the last three months from Rs 31 to Rs 18. Do you think there are problems of confidence as well?
A; The company's deadline for repayment of a liability of 350 million of FCCB falls on Tuesday, But there are news reports that an extension of 45 days has been agreed upon after the company sought an extension a couple of months ago.
Currently , there are reports that the company is looking to raise an additional over-300 million of fresh FCCB to repay this liability of over 350 million FCCB. But this increased debt in the books gives little cause for worry because Suzlon controls REpower, which is currently valued to the extent of USD 2.5-3 billion and that comforts creditors while lending to the company.
Suzlon needs to improve margins and that could improve the situation quickly. The stock has corrected from over Rs 30 to about Rs 20 in the last couple of months. There also was a swift rise from Rs 20 to Rs 30 as well in the preceding two months. So I'm comfortable in taking a long-term investment call on the Suzlon than on HCC.
Q: Why the 15% rally in GVK Power today?
A: I don't know. I'm unable to put my finger on the reason for the rally except for some kind of relief to be announced for power distribution companies, and the acquisition of coal mining interests in Australia.
Prominent are the stocks of Adani Power and Tata Power followed by GVK Power. This could be the reason for such a big rise and the stock has corrected. It is ruling at Rs 12.50 and an upsurge of over-15% may be expected.
Q: Videocon posted a good move on news reports that came in today. How much more of an upside do you expect in the stock?
A: The move was due to on news of the company's gas foray with a 10% stake in the venture. But generally the upsurge in the share is never sustainable.
The share's move might also be on the company's initiative to keep its electronic division and oil and gas assets separate. It is better to avoid creating long positions at this level and investors can look to exit at a level of over Rs 180.
Q: Many of the power stocks have moved up. Is there any stock that deserves a mention as either a trade or an investment?
A: Two stocks look very good- Tata Power and Adani Power.
Tata Power corrected after posting poor Q4 results. In fact, the share is also seeing renewed buying interest and short covering.
I still maintain my positive view on the stock. I expecting it to breach the double-digits mark in the near term and post Rs 105-106. Short term investors or pure traders can initiate a positional long call for this series.
The second stock on which I will take a long position is Adani Power. The stock has built up huge shorts and has corrected to stable level. So these two stocks are looking good in the power generation space.
Q: Merrill Lynch's report is positive on the real estate sector. Is there anything in the sector that you like?
A: There has been increased interest in the Mumbai realty sector over the last 45 days. There is a reasonable surge of 10-15% after a dip caused by prospective buyers wary of construction projects with long gestation periods. I’m positive on HDIL and Indiabulls Real Estate.
Q7: Do you have any trading ideas in mind in the run-up to the policy or Greece on the short side? Are you expecting some stocks to cool off quite a bit?
A: I am keeping my positive view on the banking stocks though the global events will play a major role on our market also, But I am hoping the RBI will announced a cut in CRR and repo rate.
I won't be surprised to see the repo rate cut by 50 bps. So that is the long call on the banking stocks. A lot shorts could be on the metal stocks, especially iron and steel stocks like Jindal Steel & Power which is under pressure and maybe with the Sesa Goa, which has seen a good run up.
From an arbitrage point of view, Sterlite is still ruling in relation to the conversion ratio of 5:3. So maybe a weak or a negative call can be taken selectively on these metal stocks.