Stock-analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that his bets for are Idea, SpiceJet and Deccan Chronicle. The analyst also adds that the IMG recommendation on deallocation would prevent misuse of resources and hasten power generation in the country.
Stock-analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that the reason for the sharp fall in telecom stocks is unclear, but Idea has been buoyed by the increase in trariff and the ability to retain interest after registering a huge run-up close to six months ago.
SpiceJet features next on Tulsian's list as it will be one of the most attractive venues for overseas investments once the FDI in the aviation sector is allowed, thanks to its sound financial position and the willingness of the airline's management to induct foreign participation into the company.
Deccan Chronicle is the last stock on Tulsian's list as the sale of its IPL entity, Deccan Chargers, will aid the company reduce its debt and restore finances.
The stock analyst favoured the IMG recommendations of taking away the coal-blocks of mining companies with no plans regarding the use of the coal that will be mined.
Below is an edited transcript of the analysis on CNBC-TV18.
Q: A lot of telecom stocks have fallen off quite sharply except for Idea which is holding up after the hike in tariff in the second stage. What are the trends you're spotting in Bharti Airtel and Reliance Communications?
A: I do not know. It maybe because the general perception on telecom stocks during the last couple of months has not been very good. I do not think that there is anything special or negative on the stocks to cause such a correction and post such a sharp fall.
Idea has been holding on due an increase in the tariff across Madhya Pradesh and Chhattisgarh and in general, overseas investors have been very positive on Idea over the last six-to-twelve months. In fact, the share posted a huge run-up six months ago and I think this interest is at work in keeping Idea buoyant. But I do not think that there is any other specific reason which can be attributed as being negative for the telecom sector.
Q: A major Cabinet meeting is to be convened on Friday and expectations are high of a decision being taken on FDI in aviation. What is your view on SpiceJet? Do you think the airline is attractive enough for global investors?
It cannot be compared with IndiGo which is not available in the public domain. Two, the promoter is willing to induct foreign investment into the company while Jet Airways has never signaled such an indication and the option is not available to Kingfisher until the promoters restructure its debt with the banks.
SpiceJet holds the added lure of a probable rise to Rs 37. So if you take a trading call or a short-term investment call, the stock can be expected to provide a 10% return in about a week to 10 days. A return of this kind cannot be expected in the case of Jet Airways. So, on a relative and a fundamental basis, SpiceJet is a hot favourite.
Q: What is your take on Deccan Chronicle?
A: One has to keep an eye on today's outcome because till now there has been a single bid for Deccan Chargers and this is slightly disappointing. I don't know how the BCCI is analysing the situation because if the bid is below the reserve price, the company will have to initiate the process of persuasion and negotiation with the buyers.
But I presume that the process will through and the average price I expect will be Rs 900 crore. This will set the ball rolling in the process of debt reduction and even if two or three banks are paid off, it will be a big positive. A major portion of the proceeds will go to ICICI Bank and IndusInd Bank who have been the key financiers of the Deccan Chargers.
Another piece of negative news that continues to dog the company is its qualification to be referred to the CDR Cell. The situation is precarious for the company due to confusion regarding the quantum of debt and the manner in which it has been presented to the various lenders. But I am keeping my hopes alive.
If the Deccan Chargers auction goes through today at about Rs 900 crore, the company will be well on its way in reducing debt and restoring its financial standing.
Q: What do you make of the comments from the coal ministry on the de-allocation of four coal blocks recommended by the inter-ministerial group (IMG)?
A: The coal block de-allocation will definitely be quite negative for any listed company that is covered or impacted due to the number of coal blocks.
Q: Though three coal-mining companies have been recommended for revocation of bank guarantees, the IMG has shortlisted around 18 companies against whom the revocation of bank-guarantees are to be initiated. Do you fear that the IMG might recommend punitive action on more companies?
A: Definitely, it was feared that some of the coal blocks would be de-allocated and in fact the number was estimated to be about 10. But until there is clarity regarding the whole process, the de-allocation of coal blocks will be quite negative.
Q: How detrimental do you think the de-allocation of coal-blocks will be for Monnet Ispat?
A: This was the least preferred among the steel and power stocks. The stock's trading and price patterns have been quite dull for the last six months. An increase in news that could be negative for the company, will only further weaken the company's financial performance and lower stock further in the eyes of the market.
Q: With the whole issue to be eventually dealt by the PMO, do you think that this is actually the end of the road with regards to allocation of coal-blocks? Or do you think that this is just going to be one more step in a long process which might possibly involve a lot of lobbying at some point?
A: I won't call it the 'end of the road' because of the riders that have been incorporated into the allocation agreement. The first rider mandates that there has to be an end use. If companies that have been allocated coal blocks for power generation have not entered into any power purchase agreements (PPA) then the coal-blocks may be taken away. If they show willingness to sign a PPA at a rate below Rs 3 per unit, the companies will be allowed to keep the coal blocks allocated.
So, it is not the end of the road. But the companies that have been recommended for de-allocation will definitely face a tough time in persuading the authorities in having the coal-blocks restored.
Q: The coal ministry has approved the IMG recommendations. If the recommendations are acted upon and the coal-blocks are de-allocated, what will be the kind of repercussions on companies like JSPL?
A: JSPL has not been included in this list. The coal ministry statement clearly mentions that the lack of an end-use plan has been the reason for initiation of de-allocation. I don’t think that the banks have sanctioned loans to mining-companies with no end-use plan.
Backward integration by steel and aluminium producers holds multiple advantages to state- as well as central government in terms of earning revenue, industrial production and investment. So, I don’t think that Jindal Steel and Power has come on the IMG’s radar.
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