In an interview to CNBC-TV18’s Latha Venkatesh, Sonia Shenoy, and Anuj Singhal, SP Tulsian of sptulsian.com spoke about the fundamentals of the market and specific stocks and sectors.
Below is the verbatim transcript of the interview.
Anuj: One of the stocks of the day today could be Bhageria Industries. I wanted to discuss that with you, do you think these are peak earnings and would you now recommend profit taking on the stock or do you think the stock could continue to move on?
A: I think two things, first, let me give you the disclosure that I am a director in the company and we had our board meeting yesterday. I don’t think that this is peaking of the performance of the company because if you go by the company having declared the results, Rs 44 crore i.e. Rs 43.52 crore is the PAT which company has declared for FY17 which is the highest in the lifetime of the company of last 27 years.
Now, if you come on their core business of vinyl sulphone and H-acid, their one group company or associate company that is Nupur Chemical which is having the plant or the facility at Boisar because the existing facility of Bhageria Industries is at Vapi and this Nupur Chemicals is getting merged with the company which has a very big land of 27 acres with the facility to manufacture H-acid and the scope for expansion is getting merged into the company and that will see the equity of the equity base of the company increasing just by less than 50 percent.
Three, if you see the situation prevailing in China, it is so precarious because if you make 1 tonne of vinyl sulphone, you need to handle 30 tonne of wastage which needs to get treated and then only you can discharge that. If you go by their manufacturing facility of Bhageria Industries, in fact in their Boisar plant when you visit there, you will find the trees; every year they are planting 50-100 trees which is not possible if the pollution would have been there.
So what my point is that there is a lot of ramp up in the capacity as well as in margin to be seen in their core business of vinyl sulphone and H-acid. It will be difficult to take price call because of the volatility which we see happening in the commodity. Suddenly you see 30-40 percent prices increasing in these commodities in a weeks’ time or in a month’s time. So, I don’t think that the realisation has peaked.
The capacity addition which will keep happening because that is a continuous feature, there has been no concrete plan of capacity addition by the board haven taken as of now but that is a continuous feature. So, capacity increase and the margins at which it has been prevailing now seem to be reasonable and I don’t see that further deterioration can be seen. So, it will be incorrect to say that the performance has peaked, one.
Two, the addition of 30 megawatt solar power project of which 20 megawatt has already commenced and the best part just to summarise the things that the PPA with one of the associates of NTPC, company has entered at a PPA of Rs 4.41 per unit for entire 25 years. There is a back-to-back arrangement for the opex and there is back-to-back arrangement for this 25 years PPA at Rs 4.41.
The best part is that Rs 120 crore capex on this power project has all been done by the company with internal accrual, no debt has been availed by the company and that capacity addition or that new project has started with 20 megawatt in the last week of March and then in the next year it will get ramped up to 30 megawatt. So, these are the situations prevailing on the company going forward.
Latha: From the look at the numbers of GMDC, is this sustainable? It is an outstanding performance, but is it sustainable?
A: I have gone through the numbers and I would say that they are excellent numbers because if you see lignite, their main business, that is really shown excellent performance. However, apart from that, the power generation company has shown a turnaround even in the Q4 also at the EBIT level. The best part about the company is that it is a debt free company. They have about Rs 1,200-1,300 crore parked in the inter-corporate deposit and about Rs 1,000 crore investments having made in the inter-associates company.
However, I would be keen to ask question when L Kulshrestha comes on the channel, it is more about the VAT. If you see, on VAT of 22.5 percent is charged on lignite in Gujarat state and other two states which are producing lignite’s are Rajasthan and Tamil Nadu where the VAT is charged at 5-5.5 percent. So, once GST comes in and the rates will converge or the same rate will apply in all the states together and I am expecting that in that situation the lignite VAT will not be more than 6-8 percent, so, in that situation GMDC will stand to gain immensely because whatever reduction in VAT is ultimately taking a toll on their margins because they have five lignite mines in Gujarat. So, we need to check on that.
However, excellent numbers, the EPS of Rs 10 for entire FY17 should be looked into that background, though the company has maintained the consistent dividend of Rs 3 which they have been giving for last five years. They have been continuously paying a dividend of 150 percent, face value is Rs 2, Gujarat government is holding 74 percent stake and we have been in fact giving a buy call on the stock for last three to four months when it was ruling at around Rs 100-105. So, excellent numbers on the mining front as well as on the power generation.
Sonia: I wanted you to come in on Interglobe Aviation because on one hand we have seen weak earnings but on the other hand the company is expanding its fleet, they are looking at getting into regional connectivity, etc. What would you do with the stock now?
A: Two things that, yes, they are increasing their fleet and we know that maybe 131 aircraft will get increased, so, about 180 aircrafts which the management has said. However, I am not very clear on the rural connectivity because for the simple reason that Interglobe has the same size of aircraft and whether it will be viable to operate on routes like maybe smaller one on the regional connectivity probably they may have to change the policy of inducting the different size of aircraft for that also.
However, if you see the situation going forward or maybe first if I analyse on the result analysis on the Q4, definitely the fuel cost has taken a big toll on the working of the company. Generally if I just instead of because I don’t think there is except for the fuel cost you have any disappointment by Q4 numbers. However, what happens on the overall FY17 EPS at Rs 46 against FY16 EPS of Rs 58, so there is a clear case of de-growth and all these things were well known since the company went public that they will be aggressively increasing their fleet induction and all that which other airlines have also been following.
In fact, I have been keeping my cautious view since the company went public. So, I will continue to have the cautious view because in the pecking order probably I will prefer to go with SpiceJet, followed by Jet Airways and then with Interglobe. However, I am not happy with the numbers company has posted for Q4 and as well as on overall for the FY17.
For full interview, watch video.
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