Watch the interview of SP Tulsian of sptulsian.com, with CNBC-TV18’s Latha Venkatesh, Anuj Singhal, and Sonia Shenoy, where he spoke about his pick of the day, Kesoram Industries.
Watch the interview of SP Tulsian of sptulsian.com, with CNBC-TV18's Latha Venkatesh, Anuj Singhal, and Sonia Shenoy, where he spoke about his pick of the day, Kesoram Industries.
Below is the verbatim transcript of the interview.
Latha: You have a long term bet for our viewers.
A: I am repeating my Kesoram Industries; I gave a buy call on this stock on October 16 2017 at Rs 125 and the stock has already given a gain of 26 percent. However, maybe some of the developments which heard on the street, probably of the resolution between the family of the promoters, BK Birla’s daughter and Kumar Mangalam Birla, and from the sources coming in that the company is now coming in the fold of Kumar Mangalam Birla because earlier this company was given to the daughter of BK Birla i.e. Manjushree Khaitan.
However, even if I don’t give much credence to this news and all that, the company has a very strong business model. First is of 7.25 million tonne of cement capacity, two plants – one in Karnataka and one in Andhra Pradesh, and those assets are seen quite richly valued. Apart from that, company had two tyre plants, tyre makers, so, one plant they have sold at Haridwar to JK Tyres for Rs 2,200 crore and second plant is in Odisha i.e. Balasore and that plant has started doing some kind of recovery and losses are seen getting curtailed maybe because of the moving into the passenger vehicles, commercial vehicles and all that. However, again the street is expecting that probably this division also will get monetised. Apart from that, the rayon division, the spun pipe and all that which they have sold couple of years back, has brought back by the company in its books through its subsidiary. So those things also can get monetised.
So I would say once the process of the first round of debt resolution or maybe the asset monetisation was initiated by the company couple of years back when they reduced the debt by about Rs 2,500 crore partly by selling tyre plants and partly by selling their inter-corporate or inter-group investments. Now I am expecting that in the second phase, they may probably monetise this tyre plant, plus this other rayon plant, and spun pipe plant and all that and that can fetch them about Rs 2,500 crore. If you expect that to happen, company can become debt free, and that will be seen quite positive for the residual business of cement which will value the cement business maybe at an EV of about USD 70 per tonne or so.If you come on the equity again, it is quite low at Rs 125 crore. As I said, debt is just at about Rs 2,500 crore. So taking all this into consideration, the moment we will get to hear the news of Kumar Mangalam Birla coming in on the board of the company and taking the total control, that will be seen quite positive and will vastly re-rate the stock. In fact this was also the theme played by us when we recommended the stock in October, so, we reiterate that and again maybe some positive development on asset monetisation.