Negative on series; Bet on Balrampur, DB Realty: Tulsian

Stock analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that he is negative on the series with the Nifty currently ranging below his estimate at the start of the series. The analyst advises investors to bet on Balrampur Chini due to high levels of inventory and increase in realisation, and DB Realty in which Rakesh Jhunjhunwala has acquired 12.5 lakh shares and launched projects at Prabhadevi and Goregaon in Mumbai.

Below is an edited transcript of the analysis on CNBC-TV18. Q: Do you get the sense that Reliance Industries might surprise with its earnings today?
A: Definitely, a surprise is likely if you take a sequential call. The Q1 numbers have been really very bad.  The results for Q1, which were at about Rs 4,500 crore on the bottom-line, are expected to be close to about Rs 5,400 crore. My estimates for the quarter are at Rs 5,380 crore. This is largely because of the improvement in the refining margins which have been estimated at about USD 9.2 per barrel for the quarter.
So, there may be a 35 percent increase in the EBITD will be seen on a sequential basis, on the refining front. And the large increase in interest from income which the company earned from fresh funds raised in May which have been deployed in the whole quarter.
Add to this the reversal of the deferred tax. Though, there won’t be any benefit to the company in respect to the actual cash outgo on the tax payment account, but the book entry in respect to the deferred tax which earlier used to have a provision of close to Rs 125 crore every quarter, will now have a credit.
So, a combination of all these factors and the petchem segment front, I expect a good improvement on a sequential basis. Though the overall upstream– oil and gas- may disappoint the other three divisions of petchem, refining and interest from income might cheer up the performance of the company. Q: What do you make of the comments from Balrampur Chini and how much of a positive will the removal of levy sugar plus export restrictions be for the entire sugar sector?
A: If we go by the present pricing mechanism, the levy is sold by the mills at Rs 19 per kg while realisation in the open market is close to about Rs 34 per kg. So you have a under-recovery to the extent of about Rs 15 per kg and since the levy quota is 10 percent, overall a realisation of an extra Rs 1.50 can be expected.
Though the sugar industry expected that the levy of 10 percent will be scrapped, the recommendations of the Rangarajan Committee suggest that the burden arising from the removal of the Rs 3,000-crore subsidy should be borne by the state government.
Unless and until some via media is found to bear this extra subsidy, then the mills will stand to gain by the extra realisation of Rs 1.50 per kg on the entire quantity produced.
So definitely it is a positive for the sugar sector. But I specifically hold a positive view on the Balrampur Chini based on a Rs 1,400-crore inventory as on June 30 has seen an increase of about 12-14 percent in realisations on sugar.
So the company is sitting on an unrealised gain of about Rs 150-170 crore, which will be realised by the company in the next two quarters. With expectations of good results for the September quarter, the share is showing a good upside in the market today. Q: TTK Prestige disappointed with its results and brokerages have taken a very harsh call - CLSA has changed its call on the stock from 'buy' to 'sell'. What do you make of the earnings results and where do you think the stock should settle at?
A: The results have been definitely flat, but the behaviour is typical of this stock as evinced by similar kind of results in Q1 too. The stock is likely to repeat its behaviour of remaining weak for a couple of days and moving again. The price level of about Rs 3,100 may be because of the downgrade by brokerages coupled with the dull results. But I will not be maintaining a negative stance on the stock and traders who wish to take a positional view on the stock, can look to enter the stock below Rs 3,100 for a price target of Rs 3,500-3,600 in a week or so. Q: I want to call your attention to Shree Cements which is to announce its earnings on Tuesday. Last quarter, the company posted a great set of results that caused the stock to move all the way from Rs 2,900 to Rs 4,070. Do you see more of an upside on Shree Cements and what are your expectations from earnings?
A: Last quarter's results were good because of the lower depreciation and the higher realisation from the power segments on the sale of the power division. Though, the contribution has been mainly from cement, power and low depreciation have also had their effect.
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Better results are expected from the company, but Q2 is always a dull period. So across the board, cement companies will not be posting results better than Q1 though there have been exceptions like Heidelberg whose September quarter has been better than the June quarter. But I won’t be positive on the stock and the chances that the stock will post a run-up are dim. Q: What is your view on how the rest of the series will shape up? Given the fact that inflation has been sticky this time around and the RBI may not move on interest rates, how do you think the market might react?
A: I am negative on the series with the current level of the Nifty range at 5,600-5,800 far below my estimate of 5,450 – 5,850 when the series started. I am also negative on the Bank Nifty though it has seen a good upsurge on hopes that RBI on October 30 will initiate a rate cut. Q: How would you approach realty stocks, Kolte-Patil, which has had a really good run of late, and DB Realty which is approaching the Rs 100-mark?
A: Both the stocks look good on a fundamental basis. But the stocks have to be viewed in the light of the latest news - Kolte-Patil has launched two new projects in Pune and Rakesh Jhunjhunwala has acquired 12.5 lakh shares in DB Realty which has advertised in the newspapers regarding its projects at Prabhadevi and Goregaon.
So both news-stories have revived the interest in DB Realty which has not participated in the real estate rally seen over the last one week. Both are mid-cap real estate companies with very good valuations and value-buying of both stocks has already commenced. Q: What's your call on Unitech which gained 20 percent after its out-of-court settlement with Telenor? Do you see more upside in Unitech?
A: No, I am not positive for the simple reason that the terms of the settlement reached with Telenor for relinquishing 32 percent in the JV, dwindled from an earlier demand of USD 150 million, to about Rs 25 crore.
So, obviously the settlement was reached to buy peace and end the litigation. However, nothing concrete has really accrued to the company and investors have started to voice an opinion that the company should focus more on its business.
There maybe a halt in the run up at the current level of Rs 28 before profit-booking brings it down to about Rs 23-24.  I will not be positive on Unitech beyond Rs 28. Q: You had picked up Tilaknagar Industries which posted a 12-percent move. Do you see more on the upside above the level of Rs 71?
A: On a fundamental basis, the company has a very strong bouquet of Indian-Made Foreign Liquor (IMFL) in its portfolio. I expect the company to post an EPS of about Rs 5 for FY13. If you apply a PE multiple of 16-18 on the the run up which is usual after valuations or the PE expansion in all brewery-stocks, you get a price of Rs 80-90. So the lower end of this price range for the stock can be taken at Rs 80 where, probably, the stock will reach its optimum valuation. Q: Any particular reason why Pradip Overseas is down 20 percent?
A: It is very difficult to take a call on stocks of this kind, because they show abrupt behaviour. Sometimes they go up by 20 percent and then correct. Even since this Ahmadabad-based textile company went public, there has been a lot of speculative activity on the stock. I could only attribute the momentum to operator play. This is the second day the stock has hit the lower circuit of 20 percent.