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Last Updated : Jun 29, 2017 04:15 PM IST | Source: CNBC-TV18

Here are SP Tulsian's top trading ideas

In an interview to CNBC-TV18's Anuj Singhal, SP Tulsian shared his views and outlook on the fundamentals of the market and specific stocks.

In an interview to CNBC-TV18's Anuj Singhal, SP Tulsian shared his views and outlook on the fundamentals of the market and specific stocks.

Below is the verbatim transcript of the interview.

Q: Do you think this issue of CRISIL buying into Credit Analysis and Research (CARE) could lead to a bit of a rerating for CARE?


A: I do not think that merely buying this 9 percent stake amounts to rerating, but this holds a lot of development going forward because if you see the situation now, on a financial front, first I take on a financial front, CARE has an earnings per share (EPS) of Rs 50, while CRISIL has an EPS of closer to about Rs 46. So that means it is all matching paralllely with CRISIL in terms of the financial performance.

If you see the price-earnings ratio (P/E) multiple about 42-43 times, CRISIL is getting a discount while CARE Rating is getting a multiple of about 30-31. So going forward if you see the CRISIL, the financial performance seems to have stagnated. If I take up, they have their calendar year ending, if I take their calendar year 2015 to calendar year 2016, the growth is just 10 percent while the growth is seen quite lot or quite high in case of CARE ratings. So as Nimesh has narrated the way, how Standard and Poor (S&P) have acquired the stake of 67 percent, in CRISIL first by taking a token stake in a single digit.

So that could be just seen a prelude happening here also that probably CRISIL will be looking to acquire CARE Rating also because CARE Rating has the presence in the non-rating business also and that is seen quite positive while CRISIL has the strength more of the rating business. So it will be a good combination if you really want to grow in India where the rating business is seen to be holding a lot of potential. And as I said that in case of CRISIL we have seen the stagnation seen happening.

So yes, if any further developments or any kind of indications comes in, either the nominee of CRISIL gets appointed on the board of CARE Rating or the indications coming in from the CRISIL that yes, they are looking to increase their stake because mind it, CARE Rating is a professionally managed company, about 75 percent stake is held by the institutional investors and some of them will not mind divesting their stake in favour of CRISIL as well because they got a very good price amongst the bid having invited by Canara Bank.

If CRISIL has quoted a 20 percent higher, today the stock is 10 percent up because of that. But if they have quoted 20 percent higher, definitely that is seen a serious move on part of CRISIL and because if you see CRISIL share price also, I am not saying that promoters will be looking to ramp up the share price. CRISIL is virtually ruling at a 52-week low. If you take a 52-week low and a high range, share is ruling at a 52-week low.

So definitely the promoters must be thinking that stagnation seems to have come in CRISIL which they want to accelerate going forward which can only happen with the inorganic route. So I will not be surprised to see that because even on a market cap front, if you see sub-Rs 5,000 crore and if you are getting a company like CARE Rating, I do not think that that should really be a bad deal for CRISIL. So yes, unless and until further developments happen, I will not be taking a positive call as of now on CARE Rating.

Q: Air India has a lot of employees and Interglobe Aviation (IndiGo), of course, we all know is the most efficient airline. Do you think if they indeed are serious about it, it could lead to a bit of a derating for IndiGo or do you think the market could be happy with their expansion plans?

A: Two things to it. Firstly, if you really take an optical call or maybe just a passing reference of IndiGo acquiring Air India, market will take it as a negative. But if you really take a financial rationale, I think that whoever will be acquiring Air India is seen to have a very huge value. For the simple reason let me explain here, market share of 13-14 percent. The IndiGo which has the highest market share, they are getting one third of that, about 42 percent right now they have and 13 percent will be achieved by them by acquiring Air India.

Now come on the Rs 50,000 crore or maybe Rs 52,000 crore debt of which Rs 22,000 crore have no issues because they amply bagged by the aircraft and I hope that all the aircrafts are having that kind of net present value as well of Rs 22,000 crore to support the valuations or the debt of the Rs 22,000 crore.

Now coming on Rs 30,000 crore, I do not think that any acquirer will be assuming the working capital debt unless and until the government decides to take a write off whether the government takes the set of against the real estate held by Air India or government assumes or gives a one-time grant or one-time write off and bring it down to maybe about Rs 5,000-7,000 crore which is matching with the real estate value of Air India per se on the real estate front. So if you take a call, take hypothetically if I presume that IndiGo is taking over, they have aggressive plan of inducting the aircraft. If you see right now also, as of March 31, 201, they have about 120 aircraft of which majority of them on the operating leases.

So hypothetically suppose I presume why can't you have those Rs 22,000 crore aircraft again sale and lease back model because which has been very prominent in case of airline industry. Nobody will hesitate. So your Rs 22,000 crore which you have assumed from the government can very well get removed from your books by opting for the operating leases. That means sale and lease back. That is what I say that the condition of the aircraft must have the value of Rs 22,000 crore or whatever the debt they are assuming at. That is number one. So you will not be having any deb in your books.

Now as I said that maybe Rs 5,000 crore some goodwill element, some premium element of Rs 3,000-5,000 crore and if you are getting a market share of 14 percent of the airlines, I think that makes sense. But the only caveat or the only minus or the only negative is that, as you have rightly said is the work force because the productivity is very low, the age is very low, again the gratuity and all the severance compensation, all has to get included into the liability also.

The liability which I am saying that any potential acquirer will not mind paying Rs 3,000-5,000 as a good will premium or taking all intangibles into account. So if you have that kind of valuations coming in because I am not worried for the Rs 52,000 crore debt which I have said that Rs 22,000 crore needs to get knocked off because that is amply bagged by the aircraft value. Then you have Rs 30,000 crore definitely government will be giving one-time grant to bring it or to write it off.

So taking these into account, the only negative is seen in the Air India is the employee that how much employee has to be retained, what will be the productivity, maybe it will be virtually the replacement of the entire workforce or the entire employees in Air India is that possible. That is the only negative otherwise on the financial front, I have been hearing all the experts. Honestly, I do not see any kind of concerns on the financial front except for man-power which needs to get replaced 100 percent.

Q: You have also tracked TVS Motor Company? Is it expensive now? Would you recommend profit taking?

A: No, it is not seen expansive. In fact I have a positive view, but from here, you need to tone down your expectations. If you keep a view till December, 2017, probably you can look for a target of Rs 600. But this member seems to be having a view of just one or two months only, so I do not think that from one or two months you can expect much, maybe a level of Rs 565-570 would be the target.

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First Published on Jun 29, 2017 03:59 pm
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