Kingfisher, Bharti, paper stocks on negative list: Tulsian

SP Tulsian of sptulsian.com says that he holds a negative view on both Bharti and Idea in the telecom space. Though, the paper stocks have done well today, he holds a negative view on stocks of paper companies. However, he holds a positive view on United Spirits.

Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.

Q: Stocks like AP Paper, West Coast and Ballarpur have done well today. How do you see AP Paper story panning out?

A: Strong buzz of International Paper going for delisting of AP Paper is putting this stock in the limelight. It is difficult to comment because they are holding 75% share which they have acquired at a very aggressive price. You can’t rule out even if that move is initiated and in sympathy to that, all the paper stocks have been moving up. 

Paper companies have never displayed good numbers or made profits despite price or volume increase.  Integrated companies like Century Textile and ITC paper division is not making good money. Stand-alone paper companies are very few. It was thought that, the way the stake sell has happened in AP Paper, it can also happen in West Coast Paper and not for the Ballarpur Paper. I do not have a positive call on paper stocks. But yes, with regards to AP Paper it is difficult to say whether the delisting move can really get initiated by the present promoters of the company.

Q: What kind of range do you see Reliance trading post results?

A: The results are disappointing. In the first half, Reliance had Rs 11,600 crore and Rs 8,600 crore in the second half. I don’t think there is any problem on petrochemical and refining front. One can expect a slight improvement of 20-50 bps on both the segments. The really concern lies on upstream and the increase which we are seeing from the finance contribution. Finance activity contributed 25% in net profit in H2 to the company.

The company will carry out a survey of D6 and the report will be submitted by October. Which means, don’t expect any ramp up in the upstream production in the first three quarters. I don’t think that one can really justify a PE multiple of more than 13-14. Reliance share should hover in a range of Rs 700-710 to Rs 750-760.

Q: How would you approach Kingfisher and United Spirits now, both are down 10% today?

A: We are seeing profit booking in United Spirits; we have seen the stock moving from Rs 500 to as high as Rs 770. From fundamental point of view, I have a positive view on the stock. In the last three months the stock has moved in the range of Rs 750-760 with profit booking coming in. The stock can fall to Rs 650. 

For Kingfisher, the delay in FDI and strike by the technical and support staff gives indication that the company is still facing financial crunch. Kingfisher has not been able to meet the pressing liabilities. A combination of both these factors is keeping these two stocks subdued for the day.

Q: Higher than expected reserve price or possible reserve price of the TRAI 2G recommendations, maybe a negative for both Bharti and Idea. But in terms of two of these stocks which ones do you think will be impacted the most?

A: I hold a negative view on both stocks. Bharti has a high debt of USD 7-8 billion because of African acquisitions that will be much impacted.
All the telecom companies are debt ridden. 

The auction has happened much above the reserve price, but still it is seen quite negative because for the 2G technology you cannot early demand this kind of price and that is going to put more pressure on the fund flow or the liquidity positions of the company, they have to resort for the debt.