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Last Updated : Jan 31, 2017 10:31 PM IST | Source: CNBC-TV18

Here is why SP Tulsian is bearish on oil companies

SP Tulsian of sptulsian.com does not take positive call on companies like Oil India and ONGC. According to him, government will never take the move of reducing the cess on the crude as it is a big source of revenue for the government.

SP Tulsian of sptulsian.com does not take positive call on companies like Oil India and ONGC. According to him, government will never take the move of reducing the cess on the crude as it is a big source of revenue for the government. 

Below is the transcript of SP Tulsian’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.

Anuj: I want to start with Grasim, 5 percent lower on that stock. If Aditya Birla Group has to infuse money in Idea and if Grasim is the preferred route, do you think it warrants the kind of derating we are seeing in Grasim today?

A: Two things. First you need to take the Q3 numbers also in consideration, yesterday which numbers when they came out. In fact if you see the standalone, I am referring the standalone intentionally because there is no point in taking a consolidated call. We have already seen that UltraTech have posted good Q3 numbers so the reflection of that has been seen having reflected in the consolidated numbers. The chemical division has disappointed because the way we have seen the caustic soda prices rising, that is not seen having got reflected into the standalone number, Viscose Staple Fibre (VSF) again have posted good numbers so no complaint. So yesterday’s results were in fact maybe on the expected lines but below I have disappointed on the chemical front. So, this is a situation. So yesterday only the stock should not have risen so much, number one. 

Number two, if you come on the fresh story that probably Aditya Birla Group is looking to have a respectable stake in the joint entity that is Vodafone-Idea, that will be seen extremely negative. Again if you really want to ask me, the group is making a big mistake because if you take a call now, the company Idea has grown with a market cap of closer to about USD 6 billion. You have a market cap of closer to about Rs 40,000 crore. What will be the situation on the merged entity? You will be having a debt of over Rs 1 lakh crore. I agree that the parent is all looking to infuse into the merged entity and all that, so matching contribution also has to come from the Aditya Birla Group. But here we are not talking of maybe Rs 2,000-5,000 crore. The investment is going to be quite high and I do not think this is the sector which is being well-received by the market. 

So yes, if the money has to get because these are all premature stories and premature moves, but if need to believe that yes, for having a respectable stake by the Aditya Birla Group. In fact market has taken it in its stride or positively for Aditya Birla Nuvo and Grasim yesterday, because they seem to be exiting from the Idea business because both of them are holding close to about 7-8 percent. But if Grasim needs to put additional money into that, I do not think that the standalone situation is very robust on part of Grasim where they can really make these kind of investments and more specially when Aditya Birla Nuvo is getting merged into Grasim. So, if it happens if it happens, then it will be seen extremely negative and market probably again will give a beating to the share price when the news of this sort starts coming in that yes, Grasim is looking to invest and as I said, the investment will run into maybe anywhere between USD 1 billion and USD 2 billion. It will not be a smaller amount.

Sonia: Every year we discuss the potential in the oil and gas space before the Budget and this time, Oil and Natural Gas Corporation (ONGC) is at a 52-week high. The expectation is that there will be a reduction in the cess rate. But do you think that news is already been priced in or is this still a good time for long-term investors to buy in the hopes of that?

A: I will not be playing on this theme that the cess is going to be reduced because I am not expecting that to happen because if you really see the situation before the government, they have to make allocations for so many things. And naturally, in the given situation and when the crude prices have started rising marginally, government will never take that move of reducing the cess on the crude. So this is going to be a big disappointment on part of the ONGC shareholders if it does not come and as I said that generally, I never take such an aggressive view where the cess reduction is likely to happen which is seen a milking cow for the government. If you see the excise duty having raised on the petro-products on diesel and petrol by this new government, that has kept the prices even high. So, government will in fact, that is the big source of revenue for the government and I do not think that they will really be aggressive in going for cut in the cess on the crude. So, I will not be taking a positive call on Oil India and ONGC both. As such Oil India has disappointed on Q3 numbers, that is a different story, but on Budget theme expectations of this crude cess reduction or cut, I am not going to take a positive call based on that.

Anuj: Your thoughts on JSW Steel numbers?

A: Numbers are looking good because actually if you see, these numbers have to be seen in the back drop of the rising raw material prices also and the company is procuring the iron ore largely from the third party sources. Now recently they have got the iron ore connectivity or the assurances of those things. So I would say that numbers are really looking quite good.

First Published on Jan 31, 2017 10:31 pm