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: You have been bullish on some of these steel stocks Monnet Ispat is the one that you like?
A: That is right and this is one of the National Company Law Tribunal (NCLT) cases in which we have been hearing that probably JSW Steel is seen quite interested along with one private equity (PE) investor to take control of the company. If I go by the media reports, though I am not subscribing that these kind of valuations, but suppose whatever has been indicated in the media that JSW have offered Rs 2,500 crore to lenders and Rs 1,000 crore as fresh infusion of the equity that will be seen excellent for the Monnet Ispat because I don’t care what hair cut is being given by the bankers or may be the lenders which has been stated at about may be 75 percent again that is the wrong thing.
Suppose, hypothetically, I presume that this is Rs 2,500 crore as onetime payment to lenders and Rs 1,000 crore fresh infusion in equity even if it get raised to about Rs 4,000 crore as lenders payment onetime and Rs 1,000 crore equity the new promoters that is JSW and the PE investor on capital will get getting the assets having net present value of anywhere between Rs 13,000 to 15,000 crore. Because 1.5 million tonne steel plants, 660 MW super critical power projects, because these are the two main assets apart from that the company has been holding some of these stakes in the Orissa Sponge Iron. Part of that stake has been invoked and taken over by the lenders that is Standard Chattered and State Bank of India (SBI) and may be some of the stake which was at 35 percent which is again a very pricy assets. If you just go by these potential acquirer taking the control of the company what will be the status 52 percent of the equity is now held by the bankers that is as a part of the strategic debt restructuring (SDR) when they have converted their debt at Rs 34 per share.
So, they will be giving up their equity because the media report wherever are saying no one can touch the public shareholder they can never get squeezed if the resolution is seen happening. It is just a myth that equity has a zero value and all sort of things, so if you see again the media reports which says 70 percent will be held by the new promoter combine that is JSW and PE, 10 percent will be by the existing lender and 20 percent by public. So, if I just take this all equations probably the equity of the company which is now at about Rs 200 crore will rise to about Rs 670 crore making back of envelope calculations to infuse Rs 1,000 crore at a price of Rs 21-22 per share.
But again that should not be seen as a negative because promoters are issuing shares at Rs 21- 22 and the market price is Rs 34. Because the PE expansion and as I say the valuation of the company after new promoters like JSW coming in will get vastly re-rated. I see excellent and tremendous potential if this acquirer comes in at any kind of valuations, forget Rs 3,500 crore even at Rs 5,000 crore and that will vastly re-rate the stock. So, we have given a target of about Rs 42 in six months, but I won’t be surprised to see share doubling in year 2018 to about Rs 67- 68 as well.
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