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Last Updated : Nov 12, 2012 06:26 PM IST | Source: CNBC-TV18

Tulsian recommends Radico Khaitan, KFA, HDIL

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com tells he is positive on most Mumbai-based realty stocks. He says he has a positive stance on HDIL, DB Realty, Ajmera, Orbit Corporation.


In an interview to CNBC-TV18, SP Tulsian of sptulsian.com tells he is positive on most  of the Mumbai-based realty stocks. He recommends  HDIL, DB Realty, Ajmera, Orbit Corporation.


Below is the edited transcript of Tulsian's interview


Also read: Brighten up your portfolio: 5 stocks for a Happy Diwali

Q: DLF was the top loser on the Nifty. It's down around 3 percent odd. How exactly would you approach it ahead of its numbers?


A: I don’t think there will be any kind of fear again in DLF. There will not be any kind of flat results. DLF posted a result of Rs 290- 292 crore in Q1. I am expecting that Q2 also will be having a PAT of close to about those levels only.

I don't know if DLF will be booking the NTC Mill sale at Mumbai in this quarter, because the deal has just completed and upto September 30, the amount only received from Lodha was about Rs 500 crore. The liability of Rs 1500 crore has been assumed.

So the effect of that will be given in the Q3. Otherwise, if you take an overall call, it has been very dull because generally for the real estate in the Mumbai market and the Northern market, we see that starts happening around Dussehra.This time, since Dussehra got postponed in Q3, we are likely to see slightly delayed launches.


Maybe the effect of that will be seen more in the Q3 numbers. Q3 will be more interesting, but there was an overall disappointment from its Q2 numbers.

Q: For someone who has absolutely no position in United Spirits at this point, is it too late or do you think it still deserves an entry?


A: If  I started recommending the stock at Rs 450 when the New Year started, obviously I won't be convinced to buy the stock now at Rs 1,775. In the morning it started with Rs 1,500 and we have seen the gap up opening gave a rise of about Rs 150 and then there after, we are seeing a rise of about Rs 250.

However, now you need to focus on the contours of the deal. Infact, I am wondering whether those 10 percent preferential allotments will really get approved by the shareholder or not. It’s a probability that it may not go through. So what happens in that case is very important.


Also, the open offer is not going to see any response at Rs 1,440 now. Part of the shares will come in open offer but now there is no logic, nobody will really tender. What will happen in that case to Diageo is of utmost importance, because there is a condition that UB Holdings will sell further shares if there is no 10 percent preferential allotment made by the company.


However, UB Holding itself is holding closer to about 13-13.5 percent stake. So, even if they exit completely, the entire 30 percent stake held by the UB group, 27.5 percent directly and 3 percent by the UB welfare trust whether that will satisfy Diageo or not, is yet to be seen.


So, the broad contours of the deal needs to be massively changed. I don’t know because I find Rs 1,440 as very low amount. Infact, the amount was expected to be anywhere between Rs 1,550-1,600. So, definitely the overall deal comes into a question mark. Once we start having any kind of apprehensions coming on that, we may see the stock seeing a steep correction. It can correct by about Rs 150-200 also. So definitely I won't advise to enter the stock now at these levels.


Q: How would you approach Suzlon as a stock fundamentally?


A: I don’t think that you have any kind of positive coming in, but since it is a supposed to be a fundamental view, that has to be taken on a longer-term scale. If you see the only positive which is coming in from the Indian bankers, those who have an exposure of about Rs 14,000 crore to the company, they are prepared to assume the debt, which is lying in the books of the RE Power. RE Power is a 100 percent subsidiary of the company and bankers of the company have been insisting to merge RE Power which has a valuation of atleast about USD 3 billion.


If you really go by the business model of the company, it is the fifth largest in wind energy in the world. The kind of valuations and the top-line is very much intact at USD 5 billion and that itself is very assuring.


So, if somebody is taking a fundamental call, I think the first step, which we need to watch is the debt restructuring. It has also been hinted at by the banks. They are going to give the moratorium of maybe a couple of years for the interest payment as well. They will also restructure the whole debt. Once that happens, it will be seen quite positively.


However, I don’t think that that whole process can even take place before the Q3 results comes out. So, we are going to see the negatives. Again, I don’t see much downside hereon. I don’t think that the stock can really fall below Rs 14. But yes, if somebody can keep a view of two- three years, I think this can again be a big multi-bagger. Because, this is just a matter of time because there have been withdrawal of the tax incentives even abroad in Europe. There have been problems in getting orders for wind energy.


Ultimately, if you go by the nature of the product or nature of the industry, it has to pick up in the next couple of years. So, maybe there will be some pain for the next six-eight months. But only longer-term players can look to enter into the stock with a view of atleast a couple of years in the stock.


Q: Radico Khaitan moved up about 5 percent, you see any more such deals take place?


A: I am quite optimistic on Radico Khaitan. I am expecting the stock to probably move to Rs 160. That’s a target I have given for on the stock.


It is still ruling at a PE multiple of close to about 18 times. If you see the half yearly performance, that has been very good. Infact, the balance sheet of the company is quite strong. They are likely to post an EPS of close to about 7 for FY13 with a debt of less than Rs 400 crore in the books. They have a very strong brand bouquet with them.


They started marketing their own brand only from 1999 and in these 13-14 years, they have really made a very good name of the strong brand. So, I am expecting that, that share can move to about Rs 160-175 in the near-term. So overall, I have positive stance on the stock.


Q: While Manappuram General Finance continues to head lower, Muthoot Finance is up almost 11 percent. There is such a big disparity in both these companies from the same industry. How would you approach something like a Muthoot Finance now?


A: Even I was keeping a positive stance in Manappuram Finance. I though that the company will really be coming out with very good numbers. Because of that, lot of short-term investor position got created into it, but the disappointment has come from the Q2 numbers, where the EPS has been at about 1.3-1.35 against the expectation of close to an EPS of Rs 2.


So, if you make a comparative analysis, Muthoot is now ruling at a PE multiple of close to 7 plus while Manappuram Finance is ruling at a PE multiple of 5 plus or maybe sub 5. So, I think that the disparity which used to rule earlier at about maybe 20 percent or so between both these companies- because of the size, the level of operations or because of better fundamentals prevailing, incase of Muthoot Finance it got little widened.


However, I think that in Manappuram, the support of Rs 30 looks very good. Once that comes in, we will again see the renewed buying coming back and can make the stock move swiftly back to Rs 36. I agree that Muthoot Finance’s positive fundamentals continue to remain but maybe at some point the profit booking can make it correct or may put a halt. So, I wont be too gung-ho on the stock on Muthoot Finance beyond a level of Rs 220-225. There I am expecting that profit booking may come in slightly.


Q: Kingfisher Airlines is up around 4 percent. Do you think that any of the proceeds will actually go into Kingfisher Airlines at all?


A: There is no reason for Vijay Mallya to divest the family silver. He sold his stake in United Spirits Ltd obviously with an idea to repay the loans of KFA. There is no other option in front of him. Now, I think all the focus and the entire activity of the UB group will revolve around KFA.


I am expecting the combination or maybe the part settlement with the suppliers where they may ask for a 50 percent waiver. They might make a one time payment or even ask for settlement or debt restructuring with the bank by making some upfront payment which could be anywhere between USD 500-600 million. They will try to bring down the debt in the books of the company, maybe to the level of about Rs 2,500-3,000 crore and maybe, the supplier’s liability also to the same amount because if you see now the company has a debt of Rs 7,000-7,500 crore, the suppliers liability of Rs 5,000-5,500 crore.


Once they lighten the balance sheet of the company with total liability of close to about Rs 5,000-6.000 crore, they can very well make foreign airlines come into the company at a valuation of close to about Rs 6,000-7,000 crore . If you take the market cap, it is very low, maybe less than Rs 1,000 crore market cap.


All the focus will be on that. The amount of the sale proceed from United Spirits Ltd will be used for that. I am keeping a watch on whether the stake sale in Mangalore Chemical also happens and if the mobilization of the funds by the group, from the monetization of the real estate, which are held by the promoters in their personal capacity. So, now the entire focus will be shifting on KFA. I won't be surprised to see a dramatic up move or turnaround happening in KFA, the way we have seen in case of United Spirits.


We all knew in case of United Spirits that Diageo sale is likely to happen for the last couple of months. But see the hike and seek they have been playing. We have seen the stock falling to Rs 1,000 and today it is ruling at Rs 1,900.


Same kind of things can happen. Presume if they say that Emirates is coming into the company or may be Etihad is taking stake in the company. It will vastly change and I don’t see any reason for the company to not capture or regain the market share which they have lost.


So, overall I am keeping my positive stance but this is not for the impulsive trader who takes a daily call, if it calls to Rs 1,350 they take a sell call, if it moves to Rs 1,450 they take a buy call. So, you need to have some patience, have a time horizon but I am confident that the entire amount of the sale proceeds will be used to repay the debt and liabilities of KFA.


Q: Would it be a prudent approach to buy on dips with regards to defensives, say for example Ranbaxy, which is down around 2 percent odd and maybe ITC, which is down around 1.5 percent?


A: I don’t think that will be a good idea for the investors. The kind of up moves, which we have been seeing in many other sectors, especially in the real estate and the cement, I don’t think that it is a time for the investors to remain invested in the defensive. But yes, the traders can look to buy for a gain of about two percent because all these stocks,  whether you take a call on HUL, ITC or maybe pharma stocks like Lupin, Biocon, Cipla, Ranbaxy – they all seems to have bottomed out. I don’t think that much weakness is seen from hereon, but neither the very good upside is also seen. So maybe, for a couple of percentage trading ideas in remaining part of this series it can be looked at and traders can look to enter into the stock.

Q: Anant Raj Industries’ stock has had a rollicking run since the start of September when it was at Rs 43 and now touching a Rs 100. Do you see a more upside there and HDIL as well at Rs 110?


A: In the Northern space, if you really take a call on NCR Region, this is probably the only company, which looks really quite decent. If you go by the management statements which they gave about three months back, that they are looking to make their company debt-free by March 2014; in the last couple of years they have raised their debt of close to about Rs 1,000 crore or so. But they have a very strong presence in residential projects, commercial projects, shopping, IT park. Majority of the developed properties held by them and have been leased out on which they are getting the continuous flow of the lease income. The kind of run up which we have seen in the completed properties and which they are not selling off is also giving confidence. For the last one month, we have been seeing the buying happening from the informed circle and maybe post results also it was expected that probably the stock could correct about Rs 90 or so.


However, because of the overall positive stance happening on the real estate sector this stock has been moving. I am keeping my positive stance that the share can move to about Rs 120-125 in the next couple of months.


Similar is a case with HDIL also. Now the space of the sale of the TDR will really catch on from Q3 onwards. This was also indicated by the management earlier and there also if you see their Q2 numbers, there has been a slight reduction in the debt portion, not significantly, but atleast by about Rs 150-200 crore. So, that also indicates that the positive time seems to be coming for HDIL.

I am keeping my positive stance on all the Mumbai-based realty stocks whether you talk of HDIL, DB Realty, Ajmera, Orbit Corporation. So I am having a positive stance on all of them and HDIL is one of the largest amongst these players. So, I continue to have a positive stance on that as well.



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First Published on Nov 12, 2012 05:00 pm
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