Here are SP Tulsian's views on the AB Nuvo, Grasim & CCD

In an interview with SP Tulsian, sptulsian.com, he shares his views on the AB Nuvo-Grasim merger and how it could affect the shareholders. He also discusses Bank of Baroda's earnings.Below is the verbatim transcript of SP Tulsian's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: First let’s start with the stock of the day Bank of Baroda is now down 10 percent. Do you think the numbers look ugly and do you see more de-rating for the stock?A: In fact, I would ask that what positive have you seen in these numbers and let me come one by one, when we have seen the Q4 numbers, at that time management categorically stated that entire or major provisions and asset quality and all the issues have got factored in and we are seeing the fresh slippages of about Rs 5,000 crore or Rs 5,500 crore.Now come on the operating profit, we are all taking a jump on increase in the net interest income (NII) by about 200-300 percentage, but we are not seeing the kind of asset quality slippage or maybe the provisions having made and on best part that if you see such a big bank maybe second or third in the PSU bank after first SBI, second PNB, third could be the Bank of Baroda shrinkage of balance sheet itself is a very bad indication for any bank, because if you really see as a yardstick all the bank balance sheet must grow 2.5 time of the gross domestic product (GDP). I am not saying that this was a normal situation, but getting the balance sheet reduced that means the lending and all those things are really very bad.Sonia: You track the stock well, the overall operational performance has improved quite a bit and the stock is now up 2.5 percent, your initial thoughts?A: Numbers are looking better, but again one has to understand that why the stock has all been correcting all these days, because there was no specific reason for in respect to the industry, so maybe some specific issues must be persisting in respect to the stock, which need to get factored in because if you really see practically the stock has not shown or in fact it has been ruling quite weak for last couple of months, but yes optically if you see the numbers I have not gone into the details they are looking marginally better.Sonia: How would you react to this, the construction order book stands at almost Rs 8,750 crore as per the management?A: Actually, that’s what I have said if you really their EPC business or maybe the construction orders they have not been able to show much kind of progress in that, which Prakash has just now alluded and in fact if you recall the Jammu order cancellation of Rs 10,000 crore was seen a big blow and since then there has been no new order additions we have really seen those things happening, that’s what I said you have to need to understand the whole results in that perspective that what have been the divisional performance or the sector performance as well for the company.Anuj: At what level does this stock become a buy for you?A: Let me just quickly summarise that also, that operating profit has risen by Rs 100 crore on a sequential basis and we are seeing the provisions of Rs 2,000 crore, 75 percent of the operating profit and in fact, some time I wonder that is this the mockery of asset quality review (AQR), which was completed as of March 31 at the behest of RBI for which a lot of credit is being given to the RBI governor also, that all the bad provisions, all the asset quality or the asset concerns have all got factored in then why this things are all cropping up just in one quarter and if you really see the kind of increase in gross non-performing asset (NPA) by about Rs 2,500-3,000 crore on net NPA even after provisioning and all it has risen by Rs 1,500 crore.Anuj: You have this stock under your radar REC there is a bonus as well of 1:1?A: Bonus is not a surprise because PFC having issued bonus about couple of weeks back, this was expected and one has to really compare the REC numbers with PFC, because has posted excellent set of numbers for Q1. In fact, if you see their interest has fallen and in fact they have posted an EPS of Rs 12.5. REC is always ahead in terms of the financial performance, though PFC is seen to enjoy more by the market and given a rich valuation, but REC is having more better fundamentals, so one has to really the provision and ultimately the EPS what have they posted for Q1 and accordingly one has to take a call by comparing it strictly with PFC whose numbers were very good.Anuj: There are other concerns as well from Grasim shareholder’s point of view. This whole restructuring itself is contrary to what Grasim shareholders would have got into in the first place which was for the cement business. Your thoughts on that and we will be taking about it of course when the deal breaks as well? A: It reminds me, or the comparison of the Vedanta and Cairn India merger. I have heard Varinder saying this kind of discount 30 percent, 40 percent I don’t know why we are so enthusiastic and so generous and so wishful. Let me clear this myth on the discounting factor on the holding company and all that. At what price Grasim is ruling now Rs 4,600, if you give the core valuation of the Chlor Alkali business and the Viscose Staple Fibre business with an earnings per share (EPS) of closer to about Rs 100, remove the value of standalone basis of Rs 1,500. That means you are attributing the value of Rs 3,000 to Rs 3,100 crore for the cement business. If the company distributes the shares genuinely and legitimately and in a transparent manner each Grasim shareholder will get 1.77 shares of UltraTech Cement. That makes a valuation of Rs 6,600 per share of Grasim for which the market is giving a valuation of Rs 3,100, I am repeating Rs 3,100 that means market is giving a discount of 55 percent. So, why we are so generous of hypothecating it at 30 percent discount, 35 percent discount, 40 percent discount number one. Number two Grasim is not a cash rich company, mind it. Grasim has a debt of Rs 1,700 crore. They have a cash and cash balance of Rs 1,200 crore. That means that is a debt ridden company; mind it we need to look that on a standalone basis not on a consolidated basis. So, again we are doing a myth by calling repeatedly Grasim as a cash rich company, that is a debt ridden company with a net debt of Rs 500 crore they have annual interest liability of about Rs 120 crore or so number two. Number three the clear intention, Aditya Birla Nuvo is holding 23 percent stake in Idea Cellular which is a sinking company. Again, if you see the interest burden almost getting doubled in this FY17 with Rs 1,000 crore interest liability having provided in quarter one against sub Rs 2,000 crore for whole of FY16, I am referring to Idea. That means you want to dump that telecom business into a profit making Grasim business.First you did a big injustice of keeping the holding company structure of Grasim which I explained taking away my 55 percent valuation. If I straight way get 1.77 shares of UltraTech which management has no right to teach me that I will manage your shares. You don’t hold it directly allow me to hold it through the holding company structure. So ultimately, what we are hypothetically presuming that means all the brick and mortar business will go into Grasim like insulator, rayon, fertiliser which are again having not significant kind of valuation and profitability coming in.So again the khichdi which is what we are seeing now in Aditya Birla Nuvo, that khichdi will get transferred into Grasim Industries with worst fate of that happening. I won't be surprised to see the discount widening to as high as 65-70 percent. In fact, it is a shame that such a group has having a discount of more than 50 percent for a majority holding company.In fact, that kind of discount is not seen in case of Hindustan Zinc and Vedanta also which has a worse case than this, so you are unnecessarily intentionally creating and throwing all your Grasim shareholders into the hot water, that means you will be forced to take telecom on your head, you will be forced to take insulator, rayon, fertiliser on your head so I won't be speculating anything unless and until I see the actual broad contours of demerger seeing happening.You all maybe start taking the speculation this will happen like this, this will happen like this, but I have just explained the present state of discount which Varinder has loudly been saying 30 percent discount, 35 percent discount, 40 percent discount. I am not prepared to accept because market is already giving a discount of 55 percent to the holding of cement which is UltraTech is a beautiful company, the largest cement company with 90 million tonne eventually will become a 90 million tonne cement company for that the market is giving a discount of 55 percent. I have given you the fact before you. Let your analyst, let your reporter work on those lines that whether Grasim shareholder will get 1.77 shares or not in lieu of 1 share held by them.Anuj: A take on MRF’s numbers?A: Overall, I am not too happy with the tyre stocks, because the kind of indication which we have seen from Ceat coming in and in fact even for the Apollo Tyre also, though the Europe business have shown the significant improvement, but I don’t think that those will really be seen maintaining the share prices at which they have been ruling. So overall, cautious view on the tyre makers and especially as Sonia has said the rising rubber prices to about Rs 140 per kg now ruling coupled with the Chinese threat unless until we see some government protection move or something coming in, I don’t think that one should take a positive view on the stock.Anuj: Do you track this stock Coffee Day?A: I track the stock, but again merely converting from loss to profit, I won’t be taking it too positive because when they went public and again we have just a while back we have discussed on this holdings subsidiary concept, even Coffee Day is a holding company, even if they are holding 80 percent or 85 percent doesn’t make any difference, so will you give that kind of discounting for the coffee retail chain which they are owning to the extent of 80-85 percent. So I have never been comfortable and in fact, merely from loss to a meagre profit of Rs 10-11 crore won’t be seen too attractive or will enthuse the investors.