JP Associates, MTNL & Orchid top Tulsian's bets

Stock expert SP Tulsian of sptulsian.com explains to CNBC-TV18 that he is positive on JP Associates, despite the low realisation from the sale of stake at its Gujarat units, due to monetisation from real estate and profits from real estate development projects. Tulsian is also positive on MTNL on inflows from the planned sale of surplus spectrum and monetisation of real estate. Orchid enters Tulsian's list thanks to a return of informed buying and a robust pipeline.

Below is an edited transcript of the analysis on CNBC-TV18.  Q: How would you approach Opto Circuits and S Kumars which collapsed today?
A: Opto Circuits has been looking weak for the last one week. Whenever there is any kind of negative news coming in, the short-sellers react sharply especially in this instance on news in the market that one aggressive bear has gone shorts in the counter heavily, and that has caused the stock to correct. It is obvious that weak fundamentals have supported the bears’ move in the counter.
But coming specifically on S Kumars, the corrections have been very frequent in the stock. It corrects swiftly over a couple of days by 12-15% and then takes about 10-15 days to regain the entire losses. At times it is not able to recoup the entire loss.
S Kumars looks very weak though there is no complaint from the fundamentals. The company has an EPS of Rs 13-14 for the whole year and there is little expectation of the textile company to rule at a P/E multiple of 1.5-2 times. So there is an unidentified factor which is causing the stock to correct other than margin call pressure on the counter. Q: What do you think of Reliance? Do you think the good rally is over?
A: I did not think that the stock could move past Rs 800. Whenever the stock goes up in this manner, obviously a technical call originates in the counter where the long position was created. Nowadays if a trader finds that the stock is not moving up or there is a correction of 1-1.5%, there is a cessation in stop losses or the positions which were created at an upper level, again start coming out of the counter.
I honestly don’t see any reason for a fundamental call. The process of the buyback has also has slowed down considerably. In the last one month, the company must have bought back only 15-20 lakh shares. Now the total quantum is close to about 4 crore with the average buying price at Rs 720.
I don't think that the management is interested in buying the stock at Rs 800. So the buyback, which used to be a big trigger for the stock to move, on desperate float or selling by short-term investors that used to be absorbed by the buyback, has slowed down. There will be a strong level of resistance at Rs 800. Even if the stock moves by Rs 15-20 to beyond Rs 800, it could be because of the technical factors working on the stock. Q: When trade began JP Associates was in the green, but it has now has moved into the red. Is the market convinced about that impending deal that the company might ink with Irish-based building-materials group CRH?
A: The news regarding the impending deal has been common knowledge for some time. What was unclear was the exact time. It is only a matter of time as the deal has been concluded happened because the two companies have hived off a total of 9.5 million tonne - half which is close to 5 million tonne in Gujarat and 5 million tonne in Andhra Pradesh. The market expected that probably the entire deal of 9.5 million tonne will be concluded, but that has not happened. Till date, the agreement has only included about 4.8 million tonne at two plants in Gujarat.
In the Gujarat, the 51% stake was acquired by the Irish company with an option to retain 50%. So the company will not receive the amount of Rs 7,500-8,500 crore for the entire hived-off company as expected.
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So there maybe a little disappointment as the amount that the company will receive is less against the total debt position of Rs 43,000-44,000 crore. Instead the company will now receive only Rs 2,000 crore. If the company had received Rs 7,500-8,000 crore, it would have cheered the market.
But I am quite positive largely on the increased flows thank to real estate monetisation or profits from the real estate development.
Since this company is a holding company of JP Infra, it will stand to gain a lot. I maintain my positive stance on the stock and I don’t see the stock likely to correct below Rs 72. Once short covering or informed buying comes in, the stock may quickly move back to about Rs 84-85 in the near-term. Q: Any comments on Shree Cement and if the stock will rise further?
A: The sharp rise maybe because of a tax write-back. A few years ago, Shree Cement used to enjoy the highest EBITDA margins in the industry. At one point, it was close to Ambuja Cement. But for the last 18 months, the company has had problems with its margins.
Now the company has begun to surge ahead and I won't be surprised to see the EBITDA margins supporting the company returning to its position among the top two or three cement companies. Q: You explained how MTNL could be a good trade and the stock has provided good returns as well. Would you hold onto MTNL?
A: Yes, I will definitely hold on. There are two pieces of news expected from the company – first, the company has surrendered its surplus broadband spectrum from which it is likely to mobilise about Rs 4,500 crore. Second, the PSU is also considering the monetisation or leasing out of surplus real estate. So if the company has an inflow of close to about Rs 7,500-8,000 crore in the near future, that can make the stock move to about Rs 45. This inflow from these initiatives can substantially reduce the interest burden, outstanding dues and the losses incurred by the company Q: Orchid Chemicals is up almost 6% at Rs 120. How would you approach this stock now?
A: When the results were announced, it was expected that the share will probably breach the below-Rs 100 mark, but it held at just that level and corrected to about Rs 100. This gave rise to the opinion that in spite of the bad Q1 results, the stock accumulated purely on fundamentals and the valuation was quite cheap.
For the last maybe couple of days, there has been a return of informed buying which is also forcing the covering of shorts. This is probably causing the stock to rise. But I maintain a positive stance on the stock because the company is among the top seven or top eight pharma companies. With a robust pipeline of products, the stock can move to about Rs 125-128 in the near-term. Q: What is your target price on Cairn after a big spike in the stock today?
A: My target is Rs 355-360 at which level profit-booking will return. Q: Any thoughts on Mahindra Satyam now that it has reached the Rs 100-mark?
A: The stock will rise, despite the announced merger with Tech Mahindra, only if Tech Mahindra starts moving up. I do not hold a positive outlook on Tech Mahindra from hereon. Tech Mahindra moved up about a month earlier than its counterparts to record a considerable rise. I don't see the stock moving beyond Rs 900. Obviously, the upside is limited in Mahindra Satyam as well. My outlook is neutral and there maybe resistance at Rs 105 because of the swap ratio of two shares of Tech Mahindra for every 17 shares of Mahindra Satyam.