United Spirits tops on promise of stake-sale: Tulsian

Stock-analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that midcap IT stocks Geomatric, Polaris and Hexaware are good bets for investors. Tulsian is also positive on Amara Raja, SKS Micro, United Spirits and Kingfisher Airlines.

Below is an edited transcript of the analysis on CNBC-TV18. Q: Based on the initial results announced by Amara Raja, how would you approach the stock?
A: The performance of Amara Raja has been quite good for the last two or three quarters. The company has been posting better operating performance than its rival from Exide. That is the reason there is a positive bias on the stock for last two-to-three months. Q: What is your view on Opto Circuits after ICRA suspended the company’s credit rating?
A: For the last one month-to-45 days, market sources have indicated that the financials of the company are not too comforting. When ICRA withdrew its rating on the company’s Rs 538-crore loan, the company management explained a standalone rating had been obtained from ICRA. To prevent such incidents, I expect, as an analyst, that rating agencies also must be vigilant.
When Opto Circuit has a consolidated operation with much of the top-line and bottom-line coming into the consolidated books, I don’t understand the reason for ICRA to grant a standalone rating on the Rs 538-crore loan which is the cause for confusion and controversy.
Though management has offered an explanation, such incidents disturb the market cause it to react negatively. For the last few months, the stock has been languishing and gradually registering a fall. Today, the stock corrected by about 10%. Q: What is your view about the 4% (y-o-y) fall in profit from the results announced Reliance Infra?
A: The results are looking good. It was expected that the company would post better results, but I am unable to make a comparison on y-o-y and q-o-q basis. But on the face of it, the results look good and I think that market should react positively. Q: How would you read the results of Suzlon? Will there be a further downside as it has disappointed on all parameters?
A: The results are very disappointing. Operations have fallen over Rs 800 crore and that indicates loss. Even if I exclude interest and marginal forex losses, the company’s performance has been really very bad.
On a y-o-y basis, the top-line has been maintained at about Rs 5,000 crore, but there is a a comparable loss of close to Rs 800 crore. The performance is very pathetic as the company recorded profit in Q1 of FY12. Q: What is your view on USL and the United Breweries Holding? The stocks seem to have seen a bit of profit-taking. Would you advise investors to accumulate at these minor dips?
A: No. The kind of run-up seen in both stocks should give a pause. I maintain my positive outlook on United Spirits on increased reports about expectations of a sale of stake. Yesterday, the run-up in United Breweries was attributed to the effect of the better Q1 results.
But with the run-up in United Sprits yesterday, when the stock was up 12-13%, the profit-booking came in at Rs 875-880. United Spirits is likely to settle and investors can again take a new look at those levels because the news flow continues to remain alive in case of Untied Spirits on account of the sale of stake to Diageo. Q: Is there anything that you would like to pick from the midcap IT sector?
A: Geomatric, Polaris and Hexaware - these three stocks look quite good on either events or good results. Mastek has already seen a good run-up and has moved up. Though KPIT and Zensar have also posted good results, I will keep myself away. So maybe these three stocks Geomatric, Hexaware and Polaris look to be good buys. Q: How would you approach SKS Microfinance which is now at Rs 108?
A: There is continuous positive bias on the stock. The price of the stock will probably be at Rs 120 in the next couple of months and is already inching towards that level as indicated by the positive bottom-line in Q3 and improvement in the financial performance.  In markets excluding Andhra Pradesh, the company has grown 11-12%.
The overall position is promising with high expectations of improvement after the preferential issue and the fund infusion. I expect that the price Rs 120 is likely and the company may reach the level sooner than expected. Q: There have been some active trades on Kingfisher Airlines. The stock has moved 25% in two days. Do you see it go further than this level of Rs 10?
A: If the sale  of stake in United Spirits happens, I logically presume that the proceeds which will get realised by UB Group will be used for discharge of the debts of Kingfisher Airlines and that could push the stock further up by about 40-50%. I will not be surprised to see the share moving to Rs 13-14. Q: Any quick comment on the results of Essar Oil?
A: Things have been very bad for the company. I don’t think that there has been any kind of improvement. The company has initiated capacity expansion for the last 18 months and now has capacity of close to 18 million tonne per annum.
I don't think the management really has control on profitability. In the past, there have been exceptions on account of sales tax. But a major portion of this loss of Rs 1400 crore must be on account of operating loses and is quite disappointing.
There is also a disconnect - the stock does not react to the extent of the company’s performance. Any other share would have probably corrected by 4-6%. But there has been no impact of the adverse news on the price behaviour of the stock.