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Last Updated : Jul 05, 2016 06:06 PM IST | Source: CNBC-TV18

Tulsian tells: Why GST will pass in this session

In an interview with CNBC-TV18, market expert, SP Tulsian gave his views on the much awaited JP associates and UltraTech Cement deal and told why he is confident that the goods and service tax (GST) will go through in this session.

In an interview with CNBC-TV18, market expert, SP Tulsian gave his views on the much awaited JP associates and UltraTech Cement deal and told why he is confident that the goods and service tax (GST) will go through in this session.

Below is the verbatim transcript of SP Tulsian's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.

Anuj: Since that been the deal of the day and the story of the day. Your take on JP Associates and the other group companies, we know you like Ultratech Cement, you have liked UltraTech Cement in the past, but for JP Group in particular how are you seeing the situation now?

A: You have to understand whether this deal, the reaffirmation of the deal between the parties which has not yet been approved by the lenders, but even if we presume that may have happened at the behest of the lenders, where Ultratech has increased the offer price by about Rs 280 crore translating into USD 2.5 per tonne on an enterprise value (EV) basis. Can you really say that 30 percent upside can be given in JP Associates merely on that ground, I don’t agree number one.

Number two, if you see the consolidated debt of the company in JP Associates, I don’t think that there is any point in taking a standalone debt of Rs 28,000 crore for JP Associates, the consolidated debt is over Rs 60,000 crore and the kind of divestment or monetisation of the assets which we have been seen happening in case of JP Group, here I am talking of JP Group and JP Power as well as JP Associates in the form of cement and power projects, I don’t know how much really will be remaining with the company on the fixed assets front.

No doubt that JP Infra is having the real estate assets and that Yamuna Expressway Freeway, but still if you take a value of Rs 15,000-20,000 crore for that assets also I don’t know because if you recall out of this deal which was earlier consummated in the end of February between Ultratech and JP they removed 1.5 million tonne of Karnataka cement plant and value of that has been attributed at USD 50 per tonne on an EV basis if you just knock off the two differential between the agreed consideration having given by Ultratech, so taking all this into consideration I think this is just a frenzy and that’s the reason we have been seeing such a big sharp up move of about 30 percent in the share price and it is very strange to see 40 crore shares have been transacted, the total issued share capital is 240 crore shares. I am not saying that everything will get converted into delivery.

I don’t even expect delivery to happen even 5 percent of this, so these are all pure speculative things maybe the speculative forces with a strong hands are seen active in this, but I am not convinced with the reason that Rs 280 crore is offered extra for the acquisition by Ultratech, you allow the shares to go up by 30 percent. So my view continues to remain neutral to negative on the JP Associates as well as on the group stocks.

Anuj: A word on Coromandel International. In the morning we were discussing if the government is trying to again have some control on fertiliser prices. We spoke to the fertiliser association and they say that there is no such direction from the government, only the PSU companies have cut prices, but the stock hasn’t recovered one bit down 12 percent right now. Considering it has done well over the last 3 or 4 months, do you fear a derating for Coromandel?

A: Firstly market gives an overreaction or maybe we are not able to analyse the news correctly. If you really that why Rashtriya Chemicals & Fertilizers (RCF) and National Fertilizers Limited (NFL) because this reduction has happened in the complex fertiliser.

For making a complex fertiliser you need urea that is you need N, P and K that is nitrogen, phosphorous and phosphate and let’s understand that last two P and K are all totally imported.

You don’t make anything in the country. If you see maybe for phosphate you have some kind of which is like a sand or extracted from the mountain which we have in Rajasthan, otherwise everything is imported.

Now there has been a steep fall or maybe there has been reduction in the prices, global prices of phosphorous or potash both, so obviously that pass on has to be done and for lead for that has been taken by RCF and NFL.

Obviously, the private sector companies will not be what you called suo motu will take that lead, so whatever if you see the complex fertiliser mechanism government gives a fixed price of subsidy.

It wrong to say that it is totally decontrolled, even in case of complex fertiliser the subsidy is given by the government, but to that companies where they have the free pricing power, it is not like in case of urea where the urea is sold at Rs 5,300 per tonne, so this is the wrong what you call analysis that the government has directed, I think this is all market driven because of the reduction in the potash prices and that is being passed on by RCF and NFL.

Obviously, the other private sector companies like Coromandel, Coromandel being the largest complex fertiliser maker, they all will follow this trend and I don’t think that this should be treated in any way as negative because you cannot expect that when the raw material prices fall they will not pass on the benefit to the farmers and if you see the overall impact of this, it will impact price of about Rs 4,000-4,500 crore.

Now just to add here, I have been getting so many queries in case of UPL also that why it is falling. UPL is not making any kind of complex fertiliser and if you really go by the agrochemical and the seed business, if the fertiliser consumption will increase then obviously the agrochemical and the seed business will also increase because of the good monsoon.

So sometimes market is not able to take a call in fact it is very difficult sometimes to understand that how many, take the case of Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) today it is ruling mildly negative.

GNFC doesn’t make a single kg of complex fertiliser, so what my point is that sometimes market is unable to take any kind of call and just draw the conclusion that this reduction is happening at the behest of the government, while it is not so it is just a passing of the reduction of the raw material prices for which the lead has been taken by PSUs like NFL and RCF.

Anuj: Any call on Aban Offshore which is making a big move after really a long time?

A: Maybe the fate of Aban is directly linked to the crude prices, but I feel that the kind of consolidation which we have seen having taken place in the stock with Rs 200 being held as the big support and if you see the price holding on for last 2-3 months and I am not so much worried on the debt, because the financial performance if you see of the company has been quite good.

Even if you take the debt of about Rs 11,000-12,000 crore with the company that is supported by the productive assets which the company is having, so maybe but yes as I said that fortunes of the company is directly linked to the crude prices, so that factored needs to be considered, but if you have a longer term horizon of one year or so then I have a positive view on the stock at the current price.

Anuj: You are quite confident that goods and service tax (GST) will go through in this session would you still maintain those hopes?

A: There are two rules which are required for getting this constitutional amendment bill through, what law say or what the constitution say is you have to have the two-third majority and that should be passed without any noise, so Congress here is holding the nuisance value.

Take for instance if they don’t allow the houses to function because you can expect even the violence to get happened, if they have the intention of not allowing to bills to pass, so this is the rule this is what I have discussed with the constitutional expert and few political people that they are worried that there should not be this all noise, halla gulla or maybe violence kind of things by which the Congress will not allow the house to function, because if you talk to all the political analyst or maybe the people close to the Delhi sources, they have all been saying that there is absolutely no problem for the number game and even within the party, within the Congress 50 percent are in favour of that, but ultimately the party has to go by the whip, they cannot defy the order of the party and we know that the top bosses are not in favour of, so probably to have the peace and allow the peaceful process to go on the BJP is opening up the dialogue with Congress and if the Congress keeps quite even if they have to go against, BJP doesn’t mind if the Congress vote against the GST bill, but there should be peace while getting this bill passed. So these are two conditions required majority and the calmness or the peaceful passing of the voting to happen in the parliament in Rajya Sabha.

Anuj: First thought buyback on July 11 for Coal India?

A: Actually for this already the platform was created because if you see for last 15 days or maybe in last one month the seven subsidiaries, because Coal Indian on a standalone has nothing because they are owning the seven subsidiaries which are in the northern, eastern, western, central and southern region they are all or maybe one eastern, so all these companies seven subsidiaries have already started buying back their shares that means what has happened the fund of those subsidiaries have gone into the kitty of Coal India, because on a standalone basis Coal India doesn’t have any amount whatever cash balances which we have been seen of Rs 50,000 crore are all held by the subsidiaries, so that process of buyback by the subsidiary has already started that was with intent that Coal India will in turn be initiating the buyback also.

So this was a no news and honestly I won’t be too bullish taking a too bullish call on the stock price, because don’t expect a miracle that anything extraordinary will be offered for buyback because this is more to see the what you call the divestment target of the government also getting met with this kind of process, but this news for the preparation for which have already started a month back.

Sonia: You had been a bullish on this stock a while back I don’t know your call at this point in time at Rs 3,100 is it still worth a buy?

A: Numbers are definitely looking good, but if I compare it with the March number which was posted at 4,763 and the number has been 2,953 because what has happened in the April and month of May the company has shown a sharp decline in the sales numbers and that has been picking up well, so I can only say that the is returning back to the normalcy, in fact, one can compare these sales numbers with that of Ashok Leyland also because if you see the behaviour of Ashok Leyland as well as Force Motors for this three months you will practically find the same pattern April very low, May improving, June looking better and same situation is seen here also, but if you really see the price behaviour of Force Motor this stock is not able to move beyond Rs 3,300-3,400 and huge profit booking is coming in, so maybe the range of Rs 2,900-3,300 will be seen.

I won’t be calling it as the extraordinary numbers, but yes it is on an upward trajectory which we have been seen for last three months.

Sonia: Varinder was talking about the Grauer and Weil stock and the fact that you had recommended a while back. Is that stock still good to go for the long term investor?

A: Maybe three years back we recommended this stock at Rs 6 and I don't know what was the price was on Diwali day and today it has gone up by about 15 percent and ruling closer to about Rs 32.

And if you really see the business model of the company apart from the Growel 101 the shopping mall in western suburb it is at Dahisar or maybe Kandivali, I don't know exactly.

The kind of lease income and the kind of the core business model of the plating that is doing exceedingly well. This company is having six plants across India and as I said the kind of the value of the shopping mall and the annuity income vis-à-vis the market cap I see huge potential in the perform of this stock and this can be held with a view to look for a 25-30 percent share price gain maybe over next 3-4 years.

Anuj: Do you have any thoughts on J Kumar Infra?

A: Having won the contracts for metro the stock should come back again because in the past we have seen the stock having corrected because of the allegations.

But if you really see the kind of performance which we see with these contractors we all know that these type of things happens but yes, once it comes on the surface then that is seen negative but having won the metro orders by the company I am keeping high hopes of the coastal contracts also which will get awarded in the next six months.

In fact this is a big trigger for the infrastructure space opening in a big way for Mumbai region which will be seen quite positive for J Kumar in the time to come because they are seen as a strong contender or are likely to get good contracts awarded maybe to the extent of about Rs 2,000 crore in the coastal road projects also.

So, taking this winning contract award in metro and the expected contracts likely to get awarded in coastal road I am keeping positive.

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First Published on Jul 5, 2016 06:06 pm
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