Tulsian's tips on NMDC, Bharti Infra, NTPC

Shares of state-run miner NMDC fell by 2 percent in early trade on today, after sources said the government may announce a floor price for the NMDC issue in a range of Rs 145 to Rs 150 a share. Investment advisor SP Tulsian of sptulsian.com spoke to CNBC-TV18 regarding his view on the stock. He also discusses the Bharti Infratel IPO, which he says looks slightly expensive. He says it would have been a buy if it was priced a little lower.

In case of NTPC, Tulsian is bullish on the stock, however is sceptical of the company’s capex plans that has been moving at a slow pace. He says any new capacity addition is likely to give the stock a boost. Below is an edited transcript of Tulsian’s interview on CNBC-TV18.
 
Q: The price is out for National Mineral Development Corporation (NMDC), how would you approach that issue?
A: I am not happy with this move, because NMDC has cash balance of about Rs 54-55 per share in the books, as on September 30, 2012. That means now the net of cash, the share price is ruling at Rs 100. The earnings per share (EPS) for FY13 is close to Rs 19. One can expect that EPS because Q2 of such companies are always lower. If you extrapolate the first half earning of close to Rs 9, that gives you an EPS of Rs 19. We are talking of the divestment at a PE multiple of 5 times net of cash.
Looking at the shareholding pattern, 90 percent of the shares are held by the government of India (GoI), 8 percent by the insurance companies and the local funds. So, there are no floats with the FIIs; maybe about 70 FIIs are holding less than 1 percent of the share. Maybe the share price gets manipulated on the lower side as well. On the other hand, I was expecting the price to realise at Rs 170-175, now the price band having set at Rs 145 to Rs 150, I see a strong appetite coming in from the FIIs because they should lap this issue. One has to wait and see how the response comes in.
If we do not have response from FIIs tomorrow in the sell process, there should be something negative with the company or with the process. I am unhappy with the price or maybe the realisation of Rs 145-150 by the government.

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Q: What about Bharti Infratel? What should one be doing with that stock?
A: The valuation looks expensive. If you go by their FY13 earnings, the shares are issued at EV to EBITDA of 10.8 to 12.3, obviously at the lower end of the upper band. Even if you take the enterprise value per tower, it works out at Rs 60 crore by Rs 60 lakh per tower and if you go by the objects, the company wants to mobilize some funds, Rs 1,200 crore for installation of 4,800 towers. Apart from that upgradation and putting up of the solar panels if the company is cash positive, you see it post capex too. If you see the expected cash flow of over Rs 1,800 crore on an annualized basis, I do not think that the fund requirement is also justified.

The company has a very good tenancy ratio of 1.9, the pedigrees has been very good. The long-term contracts are very good because they have the contract from 10-15 years for all the users. This growth was expected because the 3G auctions which happened in 21 megahertz (MHz) band will require more number of towers because the radius of the coverage at the higher frequency requires more number of towers.
It would have been more appropriate to see the price band anywhere between Rs 210-220 or maybe Rs 200-210. Slightly expensive on the higher side, since we do not have any comparable peers available in the Indian markets. Infact the valuations are based on the 16-18 EV to EBITDA multiples which is prevailing in the US. Against that EV/EBITDA multiple, the issue is priced at an average of Rs 11-11.50. Therefore, it looks slightly expensive on the higher side and would have been better if priced a little lower. Q: Amongst banks, does Karnataka Bank indicate of some cut in the deal? 
A: Things are moving on that expectation only, because the prices have almost doubled in past 3-4 months. 475 branches of the bank with the present market capitalization, the value per branch works out at around Rs 7,80,00,000 crore per branch. In case a deal happens, it is at a ballpark of about Rs 8-8.5 crore per branch.
I am not comparing this with the DCB, which has a valuation of close to 15-16 crore per branch but if you go by Dhanlaxmi, which is also a possible takeover candidate. There the valuation per branch is about Rs 2.2 crore. So coming specifically on Karnataka Bank, if the deal happens, it could easily get valued at Rs 8-8.5 crore per branch and that leaves a further upside of about 5 percent on the stock price. Maybe around Rs 205, you should see the stock profiting or the share getting stabilise at those levels.

Q: Do you see more downside in Balrampur Chini after the damage that happened yesterday post the new SAP?
A: No, if you see the comparative fall in the other shares like Bajaj Hindusthan, yesterday we saw a fall of 1.5-2 percent. So yesterday, maybe the short-term investment positions or the trading positions created in Balrampur Chini got liquidated. If you see the expectation of Rs 275 per tonne for which it has been priced at Rs 280 per quintal, it was expected to be at Rs 275 per quintal by the sugar mills and by the analysts. So I do not see it falling further at a price of Rs 53-54, good support and renewed buying is likely to come back. Q: With regards to the newsflow and the run up to the issue, how are you planning to approach NTPC?

A: I am positive for the company except the acceleration in their capex cycle or maybe the capacity addition which has not happened for quite some time, otherwise I have a positive view on the stock