Here are SP Tulsian's top trading ideas

But if you now see the situation going forward, I remember the older days, used to look for the cement capacity, larger cement players with a capacity of 25 million tonnes and now that scale seemed to have been moving a level of anywhere between 75 million and 100 million tonnes because now you have two players in that space if you add the ACC and Ambuja both, you will be having a capacity of 64 million tonnes and if you take the rival that is UltraTech Cement will be having a capacity of 69 million tonnes. Obviously UltraTech has announced the plans to acquire 21 plus million tonnes from JP Group, so they will be heading towards the century mark.

So, in this background, now there are many companies with the gap of somewhere between, suppose if these companies, if the merger of ACC and Ambuja happens, they will be having a capacity of 65 million tonnes ballpark and UltraTech will having a capacity of 95 million tonnes. And if you take the number three thereafter, they all are left with a capacity of anywhere between 25 million and 30 million tonnes. So, this will be giving a very good cement play to the larger players like institutional investors and all that because if the view on the cement consumption is extremely positive.

If you correlate this with the steel policy, if the steel consumption goes up, if you have the low cost housing schemes or housing for all by 2022, cement is going to remain the story for the next three years. Now come specifically on the merger of this ACC and Ambuja. If you see Ambuja is ruling at an enterprise value (EV) of closer to about USD 180 per tonne. I have excluded the value of investments which Ambuja is holding 50 percent in ACC if you knock that off. ACC is ruling at an EV of USD 150 per tonne.

And in case of ACC, the improvement and increase in the margins of the company or the performance still exists a lot. So yes, once you have the merger of ACC and Ambuja, there will be a lot of savings on the operational efficiency and the administrative and many other expenses, so this seems to be a logical move on part of the promoters of both the companies initiating this merger move.

Sonia: The other stock I wanted to discuss with you was Gillette India. We have not spoken about that in a while but I remember you telling us a while back that you have been positive on this stock. The company has delivered good results this time. At Rs 4,800 how are you positioned?

A: For this, you need to have 2-3 mindsets that you need to go for these stocks on a long-term basis because Gillette, world over is a global consumption story and the same thing is happening in India. I agree that these results have been very good, but I do not think that companies like Gillette can really get valued or take an investment decision call based on one quarter numbers.

So, if you are convinced with the holding of at least 3-5 years, you should remain prepared for making investments in these stocks. But now, if you take the current situation at the valuations which the multinational stocks are ruling, I do not see that these stocks can really give you a return of more than 12-15 percent. But there are many savvy investors, those who look for these kind, even if they get double digit kind of investments.

But they have the comfort which is generally seen only with institutional investors, they do go for these stocks, but I think that sometimes, if you take a call on these stocks or maybe the very high value stocks, they do show some kind of volatility with every quarter results and that disappoints the small investor. So, maybe this has gone in a totally new range where only the institutional investors and ultra high net worth individual can take a position in these stocks. I do not think that these stocks are really meant for retail investors now from the current level.

Anuj: If I am not mistaken, this is one of the PSU Banks that you actually like among the frontliners. Your thoughts on Canara Bank?

A: I am not disappointed with the numbers because if you really see, the provisions are definitely seen to be quite high, but if you go by the operating performance, I will connect this with the asset provisioning or maybe the net non-performing asset (NPA) also. But if you take the operating profit that has been quite good on a sequential basis, but because of the higher provisioning, the profit after tax is looking a little dull. And with the net NPA now falling to 6.33 from 6.72 percent is also seen good.

So, yes you are right that amongst the larger PSU banks I have been taking a positive call on PSU bank, Bank of India, Bank of Baroda and Canara Bank. Those have been my choices and obviously, along with SBI. So, I am not so much disappointed with the numbers. In fact I would call that probably this number will get liked by the market.

Sonia: What would your recommendation be to retail investors on Housing and Urban Development Corporation (Hudco)?

A: There are no comparable peers available with this, but if you really go by this, because Hudco is financing more to the ultimate financials, those who give it to the retail, the home buyers, but going by the financials and all that, the issue is looking really quite good. And this will again be giving a golden opportunity for the investors, those who will be having a view of about five years to remain invested in the stock. So our advice is that yes, one should go for making application in Hudco initial public offering (IPO).

Sonia: On some of these steel companies the likes of Bhushan Steel, etc. may be brought under Scheme for Sustainable Structuring of Stressed Assets (S4A) as well. Your thoughts on it?

A: Actually you are right and in fact I have recommended both these stocks on the channel also in the last one month or maybe 45 days and I think the stock have risen by about 35 percent. But if I just first take quickly on Bhushan Steel, if I first take on this NPA resolutions, bank will definitely be keen to take up those companies first where the exposure is very high and there are prospective buyers seen standing in queue.

Take the case of Bhushan Steel, they have an exposure of Rs 45,000 crore and whatever we are getting learnt from sources and all that that Vedanta and ArcelorMittal have shown keen interest. And the kind of haircut which the banks have indicated anywhere between Rs 40,000 and Rs 50,000 crore. So, if you take a call on the valuation of this company with six million tonne of integrated steel plant and if I take the present market cap of just Rs 2,000 crore, the equity base of I have not heard any company having an equity base of just Rs 45 crore with a steel plant of six million tonnes.

So what my point is that if your Rs 45,000 crore debt which is the stressed assets, if get a haircut of 40-50 percent also, the debt portion will be somewhere between Rs 22,000 and Rs 23,000 crore. Just add the Rs 2,000 crore market cap, it gives Rs 25,000 crore while the net present value of these assets is not less than Rs 40,000 crore. So, whatever differential you are seeing of Rs 12,000-15,000 crore will straight away get added to the equity. So what point is that banks will definitely be taking those accounts first where the things are, Bhushan Steel is a S4A account.

Now coming on Monnet Ispat also, they have a 1.5 million tonne where the banks have already converted there. They have already gone for the strategic divestment route with 51 percent stake now held by the bank just holding 25-26 percent and again, the informed sources are informing that maybe JSW Steel kind of people are looking to acquire this capacity.

And similar story prevails there also with a debt of Rs 10,000 crore, market cap of about maybe Rs 1,000-1,500 crore with net present value of anywhere between about Rs 12,000-13,000 crore. So, these are the accounts which should really be looked into by the investor and if they keep patience of about 3-6 months, in fact I have said this on Friday also that these are the stocks in fact which can give you a return of about 50-100 percent in the next six months.