Watch the interview of SP Tulsian of sptulsian.com with Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18, in which he shared his readings and outlook on fundamentals of market and specific stocks
Watch the interview of SP Tulsian of sptulsian.com with Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18, in which he shared his readings and outlook on fundamentals of market and specific stocks.
Below is the verbatim transcript of the interview.
Anuj: Interesting stock that you are picking up now Capital First, you think that correction is over now?
A: Yes, in fact that is a theme. In fact theme ultimately prevails of its merger with IDFC Bank and if though I am just giving a hypothetical this one if the merger would have been reversed if the IDFC Bank would have been merged with Capital First then probably the things would have been, but that is not possible because ultimately the bank license has to be kept intact. But if I come on the Capital First quickly because it doesn’t have its own legs to find its valuation and again the Q3 numbers if you would have really seen probably that would have made the stock to move to a level of Rs 900. But now it is an excellent arbitrage play and you have to because I give a time horizon of 6 months and 6 months is seen ideal for getting this merger completed and if you really see the situation now prevailing by on the swap ratio one share or 10 share of Capital First will get 139 shares of IDFC Bank so you will be effectively getting the shares of IDFC Bank at a price of about or at a cost of about Rs 55.
Now come on Capital First, in anticipation of this merger there was this huge long positions got built up and created and we know that the stock has moved up by about Rs 200 in just couple of weeks in January series and that has got corrected and now with a new series opening I see this steady positions all coming at very ease level and long position for February series are largely held by the strong hands. So, this is a technical part and coming now on the fundamentals once the merger happens presently IDFC Bank has a book value of closure to about Rs 44 Capital First has a book value of closure to about Rs 260. On the merger with this swap ratio and if I add the amalgamation reserve in fact the book value of the merged entity will rise to Rs 52 and not Rs 41. Because the amalgamation reserve of Rs 6800 crore will get reflected into the merged entity which one may argue that, that is an intangible assets. But that is how it gets reflected in case of all the IT companies and wherever the inorganic growth is seen having coming in.So, post this merger and with V Vaidyanathan coming in at a CEO of the new bank I think that will really be a very big trigger. Honestly from hereon I don’t find any downside on the Capital First because of the fundamentals and because of all these situations which will start factoring in by the market from hereon in the new series. So, taking all this into consideration effectively though as I said that maybe Capital First will get merged with IDFC Bank in six months but theoretically I have given a target of about Rs 910 for Capital First which is now ruling closure to about Rs 760. So, maybe once it gets converted into IDFC Bank in next six months which I don’t foresee than one can effectively workout the price of IDFC Bank which will be issued to the shareholders of Capital First. So, at the current level the stock looks very good, very limited downside and even one can contemplate holding this stock for couple of years in the portfolio post conversion into IDFC Bank as well.