Here is why SP Tulsian is bearish on merger of oil cos

And in fact, it is very premature because unless and until you know the broad contours of the terms on which the agreement has all been signed, but we presume that probably having realised that we have been a big failure in passenger vehicle and even if you have a market of about maybe 45,000 vehicle getting sold on the domestic front including everything, that will be seen quite positive, maybe passenger vehicles which they are selling about 50,000 will get a flip because all these global giants they have their specialised, superior on few areas.

As I said, it is difficult, but definitely, I do not think that there will be anything to lose. Definitely, this will be seen quite positive and if something clicks in terms of the product improvement on the technology front, that can be a big game changer and hence I see this as a very positive move for Tata Motors.

Sonia: If the resolution takes longer and some of these banks have to go through that entire drill, what do you think the immediate impact could be, especially on some of these PSU banks that have a larger amount of exposure to many of the corporate defaulters?

A: Here it is not the question of taking a longer time, it is more of fixing the responsibility and if I just the broaden the horizon, three agencies can come in problem. Definitely the bankers, the lenders. Second could be the auditors of the company. I do not want to name the instances where the people are talking that maybe the older and there have been one instance which has come recently to the notice where the old accounts have to be reinstated because they have all been carrying the assets at an inflated valuation.

And third will be the role of the nominee director. Now there are two things involved. One is for financing the working capital and second is for financing the capital expenditure. In the working capital finances, instances in fact, I can give you 10 names where a single journal entry has caused the losses of Rs 1,000 crore because of the write off of the current assets or maybe the inventory and receivables held by the company having written off in one year of the prior two or three years. So, what auditors were doing, what nominee directors were doing, number one.

Number two, the gold plating of the capex having incurred by many companies because let me just give you one example of power generations. We have seen across the instances of thermal power capacity getting created between Rs 5 crore to Rs 7.5 crore per megawatt within a period of about one year. So, what was the role of the lenders, what was the role of the nominee directors because you are releasing the funds in tranches after verification of the payments having made. So forensic audit is mainly to pinpoint the criminal role of all these things and I think this is a good move having initiated.

Maybe it will take a longer time. You may not be able to nab all 50 people, but at least the process will start. And even if you have been able to nab one of the corporates having done these things, that will send a strong message. Probably the things will start, the churning will start amongst the corporates that let us settle the dispute. I have seen talking to few promoters where they have been proudly saying that we have offered them 3 percent, 5 percent at one time settlement fee.

Banks will settle everything because they are all in need of money. This is not the way, this is not the approach. There must be a reasonable settlement also of the non-performing assets (NPA) which must be anywhere between 20 percent and 40 percent. So, in my view, this is a very positive move. At least the process have started and when you are talking of forensic audit, the criminal intent or the criminal role of the people will get nabbed down and I in fact include the auditors and the nominee directors for all the borrowers, those who have gone for this things. Of course, including the lending institutions or the banks.

Surabhi: I do not know if you want to hazard a guess of what is going on with Oil India and Oil and Natural Gas Corporation (ONGC) right now, but any estimates? And if there is to be this mega merger, what do you think is the best combination?

A: I have not been favouring the merger of the upstream and the downstream company because first let us take the scenario. As you have said that probably Bharat Petroleum Corporation (BPCL) would have been a proper fit because they have a small exploration or maybe the upstream assets also.

But even if you take a Hindustan Petroleum Corporation (HPCL) and BPCL, both are on the same front in terms of the marketing outlet, in terms of the marketing shares and all that and sometimes, I am unable to understand the synergy, what kind of synergy will be enjoyed by ONGC having the oil marketing company because ultimately, it is a valuation game, even if it is a PSU, even government looks for the valuations.

If you are making a 'khichdi' of upstream or oil marketing company, you cannot derive the valuations. Take the case of all these oil marketing companies, they are all ruling at post this freedom of price fixation, oil marketing companies health have really improved to a great extent. All three companies are now ruling in a single digit price-earnings ratio (P/E) multiple and I do not think that any kind of seamless passing of the hike or reduction in the crude prices is seen happening with these oil marketing companies.

So, I do not understand in the past whenever we have seen the crude moving to USD 140-150 per barrel, if the idea is to give the subsidy when the crude moves beyond USD 100 per barrel, we have already faced those kind of situations in the past where the upstream companies have issued the credit note or maybe the kind of subsidy in the form of the waiver of the purchased price. So, I have never been subscribing to this idea of merger of upstream and oil marketing company,

Sonia: I wanted to discuss Jindal Steel and Power with you. We spoke about this yesterday as well, but today the stock has bounced back and that is something that you were expecting. The stock has now gone from Rs 70 to Rs 120 before you know it in three months. You expect more upsides here?

A: I think now it has become a trading stock. Maybe you can see it moving in the range of Rs 110-130 because the steel scenario which we have been seeing now on the relative valuation, if I take a call on the JSW Steel, having corrected to a level of Rs 180 from maybe closer to about Rs 200, that makes probably JSW Steel looks quite good.

And maybe in the lower sized steel stocks like Prakash Industries or maybe like Sarda Energy, they are looking better on a comparative valuation, they are looking better than Jindal Steel and Power, so upside is limited to the extent of about Rs 120, but expect the share to move in a range of about Rs 15-20.