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Last Updated : May 04, 2016 11:43 AM IST | Source: CNBC-TV18

Here some stock ideas from SP Tulsian

In an interview of SP Tulsian of with Latha Venkatesh & Sonia Shenoy on CNBC-TV18, he shared his readings and outlook on market and specific stocks.

In an interview of SP Tulsian of with Latha Venkatesh & Sonia Shenoy on CNBC-TV18, he shared his readings and outlook on market and specific stocks.

Below is the verbatim transcript of SP Tulsian's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: How would you trade JSPL or JSW Energy after this news?

A: Just to mention the contours of the deal -- they have mentioned two things that JSPL press release says that if they comply with the terms of the PPA then the enterprise value will exceed to Rs 6,500 crore while the JSW Energy press release says that the company has to comply with the fuel security and the power lifting arrangements. So these two things exists and in that case, power offtake. They have specifically said fuel security and power offtake -- if those things gets complied with or satisfied then enterprise value will increase to Rs 6,500 crore.

I don’t think that both the things seem to be such a tedious that there has to be a gap of Rs 2,500 crore because nowadays fuel security has not seen a big concern. There is ample availability of the coal in the global market as well as on the domestic market.

After the UDAY scheme having implemented, I don’t see any reason for the PPA also to get signed at the prevailing rate. So, I am unable to understand the logic of a gap of Rs 2,500 crore because both the press releases says Rs 6,500 crore if these conditions are met plus the net value of net current assets. So this is one part.

You have to take a call whether the deal happens at Rs 6,500 crore or Rs 4,000 crore. As I said, I don’t see any reason for these conditions not getting complied with, it will be easy for JSPL and they won't forgo Rs 2,500 crore just like that. So in all probability it takes Rs 6,500 crore as the enterprise value. So that will be seen as a good debt reduction move on part of JSPL and it is very much in confirmative with the prevailing valuations going on for the thermal power projects also considering the problems in land acquisitions and the capital cost and when you talk to the industry experts, they give a value of about maybe Rs 7-7.5 crore per megawatt but this 1,000 megawatt being the first plant of the JSPL and it is quite little older by about 6-8 years so maybe Rs 6,500 crore EV looks reasonable from JSPL point of view and if JSW Energy acquires it at Rs 6,500 crore, I don’t think that is such a big deal, they have got it but yes it will be a fair deal for them as well.

So this is the situation and there is no point in speculating at Rs 4,000 crore because it is obvious that conversely if it happens at Rs 4,000, it will be seen hugely negative for JSPL and hugely positive for JSW Energy.

Sonia: If it is done at Rs 6,500 crore as you are assuming, what do you think the upside for JSPL could be from Rs 70 level?

A: The results are due today and I don’t think that if you take a call on Rs 45,000 crore consolidated debt of JSPL, there is no point in bifurcating the debt of Rs 45,000 crore into Jindal Power and Jindal Steel and Power Ltd because it doesn’t make any difference even on Jindal Power on a standalone basis maybe having a lower amount of debt because it doesn’t make any difference.

Even here also, this 1,000 megawatt which is a part of the JPL portfolios will first get hived off into a separate company and that company's entire capital will be given to JSW Energy. So even the lenders will be looking to the overall debt positions of the company. So maybe out of this Rs 45,000 crore portfolio if you presume that maybe Rs 6,500 crore will get liquidated, this will be seen as a process of the debt reductions having started by the company.

Q4 numbers seem to be better over Q3 but if you go by the trend, forget Q1 results because Q1 results of all the steel companies were very good. Q2, Q3 and Q4 practically will be on the same line maybe there will be some respite seen over Q3 in terms of the losses or maybe in terms of higher sales but I don’t think that those things will be cheering the market at that stage because you have the charges level against the company promoter Naveen Jindal, that will get nullified but yes, the debt reduction move and clarity on Rs 6,500 crore can be seen positive maybe by about 10 percent for the stock because the debt reduction process has initiated by the company.

Sonia: I wanted to ask you about Adani Ports, the numbers looked quite good, the profits were up about 40 percent odd. What did you think of that and how would you react to the stock?

A: Very good numbers. As you rightly said, Q4 numbers are very good but actually I am more impressed with the guidance given by the management. If you see the 5 percent growth in the cargo handling in FY16 and management has indicated a 10-15 percent growth in FY17 and if you go by the various ports held at Dhamra, Goa, Kerala, all of them are increasing the capacity. Even at Mundra and Hazira they are increasing the liquid and bulk handling capacity.

So, I won’t be surprised to see the company hitting the growth of maybe about 13-15 percent as well though the band or the range given by the management is 10-15 percent. However, I won’t be surprised to see it going to 15 percent. That can give a very high operating leverage again to the company with operating profit seen rising by maybe above 20 percent for FY17 as well. However, apart from that, Q4 numbers have been very good, EBITDA at Rs 1,225 crore against Rs 1,054 crore. The entire analyst community was quite circumspect on the numbers for Q4 while all those expectations got belied.

If you see by the revenue also, Rs 1,950 crore and even the cargo handling has been very good closer to about 33 million metric tonne in Q4. So, overall, good on all fronts but I am more impressed with the guidance given by the company for FY17 with a growth of about 10-15 percent on the cargo handling.

Sonia: Apart from the results that we just discussed, the likes of Adani Ports, etc, anything else that caught your attention? BASF was also a good set of numbers but anything that you spotted?

A: I don’t think that BASF has posted good numbers because if you see the cost of goods sold, the raw material cost has been seen lower by Rs 81 crore because the non-recurring benefit has been received by the company in this Q4. The operating profit is Rs 60-61 crore so if you knock that off even the operating profit would have been in losses.

If you see for FY15 and FY16, the company has been posting huge losses and maybe the exceptional income because of the sale of the properties, residential flats, their textile business globally and as a policy having divested here also in India, I think BASF is in a big mess. I won’t treat Q4 number also as good because of as I said that Rs 81 crore, if you see the accounts of the company which they have posted, they have clearly said that non-recurring income of about Rs 81 crore has made the raw material cost lower by Rs 81 crore in this quarter which is of non-recurring nature.

However, coming on some other good numbers, Tube Investments has posted really very good numbers. I think the market has failed to understand that they have reduced their stake in Cholamandalam Investment from 50.25 percent to 46.25 percent and because of that in the Q3 and Q4, this has happened in Q3 and because of that Cholamandalam has seized to be a subsidiary of the company and become an associate. So, because of that, this associate topline never gets incorporated or included in the topline of the company so you see drop in the topline. However, if you go by the operating profit, compare it on year-on-year (YoY), there is almost 51 percent growth in EBITDA and over 32 percent growth in operating profit.

As we know, Cholamandalam has posted excellent numbers. Even the associate share of profit of Cholamandalam has shown very good profits of about Rs 90 crore against Rs 58 crore sequentially. What they have earned is Rs 725 crore gain made on sale of their 14 percent stake in insurance arm and that Rs 725 crore is a gross item. You have to knock of the income tax. So I think that Tube Investments has posted excellent numbers. In fact Q3 was bumper but I would hold this Q4 as much better than Q3 numbers.

If you come on the second numbers which I really liked is Alstom T&D because if you compare it on a sequential basis, I have been giving a very positive call on the power transmission stocks and this company undertakes the turnkey power transmission. They are making high capacity transformers, switch gears and complete power solutions. If you see sequentially, they have got 31 percent higher orders of about Rs 1,100 crore, the topline is about 32 percent higher on a sequential basis and the operating profit which was negative in Q3 has turned into profits of about Rs 70 crore.

So, I think this is a classic case of turnaround and in fact I have been giving for last couple weeks and saying on transformer and the companies which are in the pure power transmission solutions provider and on top of it Alstom T&D is ruling at a lower level because for last Q3 numbers was disappointment and because of that since it has been languishing. So, maybe the renewed buying will come back in Alstom T&D. So, these two numbers, I really like, Tube Investments and Alstom T&D.

Latha: Adani Port stock is seeing a fall of about 4.8 percent. Is that the market is disappointed with the volume and the fact that the SEZ numbers were also added and that boosted, what is troubling the market so much about Adani Ports?

A: I don’t think that both the factors could be the reason. If you just want to say that Q4 volume was 33 million tonne and if you just work that out maybe on an annualised basis Q4 looks little lower. However, I don’t think that SEZ should really be a concern. However, I have just observed that one typical behaviour, if you recall when Adani Ports was included in the Nifty and Sensex both, it continuously went negative. Honestly I am unable to accept that both these could be the reason for the negative behaviour of the stock.

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First Published on May 4, 2016 10:02 am
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