Negative on Guj NRE, book profit in Jyothy Labs: Tulsian

SP Tulsian of sptulsian.com, says that he is not convinced with the financial performance or the valuations of Gujarat NRE Coke, which has been deteriorating every quarter. That too, when the things have been very robust for the product of the company be it cocaine coal or other products, he has a negative stance on this share.

On Jyothy Labs, the performance of the company has not been encouraging and they have acquired a loss-making company, Henkel India. However, I don't know the reason for the spike in the share price in the last couple of days and whenever we have seen this type of surge in stock that has not been sustained for a very long time. I advise profit booking at this level and like to keep away from this stock. Below is the edited transcript of his interview to CNBC-TV18. Q: Do you think the BJP will allow Parliament to function on coming Monday?
A: The situation is worrying and I think we have to live with this situation may be till next decade. If we hypothetically assume that BJP comes to power, turn Congress will take turn to disrupt all the proceedings. Even if both the parties have substance in CAG report, no one should disturb the Parliament. In this case allow the accused to the present the point.
Disruption of the solution is not the solution and nothing can be expected before September 7, when the session comes to an end. From Monday we may have just four-five productive days for discussion that too will not last for a very long time. This is a very sad and unfortunate economic development for the country. But political purpose and ambitions are likely to be achieved by the parties by that time. Q: From an equity markets point of view, regulatory hurdles are impacting the telecom sector and how people have washed their hands off it. Do you think the same will impact the power sector as well and this will be a sector that will be plagued under all of this for a while?
A: First let's focus in power aspect that is the coal block allocation. If we start the auction process that is followed for the coal allocation than does it mean that we are looking for power to be supplied or may be sold by the state electricity board at the total cost looks unlikely because the situation compare situation between telecom and power. All the telecom companies can sell their airtime at cost plus normal profit.
But I don't think that the social objective continues to remain in case of power supply. We all are seeing that kind of situation whether that comes because of the political compulsion or sanity prevailing to support the backward section of the society. It will be very expensive for all power companies. The investments process definitely will slowdown. Investment interest in power sector will lower.
Will state utilities be able to recover the cost at the increased level because if you procure coal at an effective price of Rs 1.30-1.50 than it may increase may be to Rs 175-180 due to bidding process. I have doubts that will we be able to sell power at Rs 4-4.5 or Rs 5 per unit. In this case one cannot compare telecom situation with power. Q: How would approach IFCI, post 16% cut?
A: Fundamentally, prior to the conversion of the Government of India's convertible debenture into equity, the book value of the company was at Rs 58 and EPS of close to Rs 7-8. The share used to rule at a PE multiple of 7 and price to book of 0.65 or 0.7. In the current situation, the book value has reduced to Rs 38 and EPS because of the increase in the equity to about Rs 1,660 crore post conversion of Rs 923 crore into equity, the EPS for FY13 is not likely to be more than Rs 4.
So, if one apply the same PE multiple, I don't think that there is any reason for the PE multiple to get enhanced. That will be at 5-6 times. At 6 times, it works out to Rs 24.
I think the company will be enjoy the status of that of any of the midcap PSU banking stocks which are ruling at PE multiple of between price to book of 0.6 and 0.7. The company is paying a dividend of 10%. I think the share should settle between Rs 24-25. Q: What is your view on Jyothy Laboratories?
A: From last few years, I don't have a positive view on this stock. The performance of the company has not been encouraging and they have acquired a loss-making company, Henkel India. However, I don't know the reason for the spike in share price in last couple of days and whenever we have seen this type of surge in stock that has not been sustained for a very long time. I advise profit booking at this level and like to keep away from this stock. Q: How should one approach DLF now? It is down 3% and it hasn't reacted with too much enthusiasm even post the NTC land sale and now talks of Aman Resorts getting done as well at about Rs 1700 crore or so. The stock is not reflecting any of that?
A: If you take these two transactions, the cost of Aman Resorts was Rs 2,000 crore and they are planning to sell it at Rs 1,700 crore, point one and similar is the case with NTC land. Even if both the transactions are completed by December 31, any other income will not come into the P&L which otherwise would have reflected in the books of the company to the extent of Rs 500-1,000 crore.
There is no clarity whether Aman Restorts have been sold at Rs 1,700 crore and what will be the proceed realization, but incase of NTC we are getting information that DLF will receive Rs 2,700 crore.
If the receipts get differed over one year, then again that will be the second negative. But even if they are able to make use of entire Rs 4,000-4,500 crore for retirement of the debt, probably that will be seen positive by the market.
But one has to wait for that amount utilization getting used for retirement of the debt of the company then only it will get seen reflected in the share price. But as of now it is a near term neutral for the stock. But I won't be keeping a negative stance on the stock below Rs 200. Q: What have you made of the disparate performance that we have seen in couple of these ADAG names, Reliance Infra is down 3%, but Reliance Power spiked up close to 3% in the last two hours of trade?
A: The performance has been subdued for the whole of the week. Reliance Capital could be singled out, but that has also been correcting for last three-four days.
I don’t think that there are any triggers. In fact I have been keeping a slight positive stance on Reliance Infra, but that also has not been able to perform because if you focus on the results posted by all the group companies, even Reliance Capital, optically found to be the reasonable numbers, but the numbers have really been bad on their core segments of finance and investments.
So, overall this has to do more with the profit booking, once the profit booking gets over the stock will bounce back. I am expecting more bounce back to happen in case of Reliance Capital and Reliance Infra. I will be keeping my negative to neutral stance on Reliance Power and Reliance Communication. Q: How would you approach Tulip Telecom now where the FCCB redemptions are due in the next couple of days and the stock has been witnessing quite a bit of pressure?
A: If you really see the correction which we have been seeing the lower circuit gets hit continuously and with the FCCB redemption of 140 million, Things are not looking easy for the company. The stock have corrected to Rs 100, I don't have a positive stance on the stock. Q: Your thoughts on Gujarat NRE Coke?
A: Overall, I am not convinced with the financial performance or the valuations of the company which has been deteriorating in every quarter. That too when the things have been very robust for the product of the company be it cocaine coal or other products, I remain negative on this share.