Here's a fundamental view on market from SP Tulsian

Two, if you really see the government holding of closer to about 88 percent, the offer for sale (OFS) is going to be seen definitely before March of about maybe 3 percent by the government of India to bring down the holdings from 78-79 percent to 75 percent to meet the 75 percent guideline as well. So these two things are seen to be little unfavourable for the stock and considering the price rise which we have seen, seen to factored in, in this all hike in the non-coking coal prices and maybe leaving off the evacuation charges as well.

Sonia: The stock that you wanted to talk about today is Sarda Energy. We have spoken about this in the past, but just tell us what the future triggers are for this company?

A: Multiple triggers for this and in fact I had given a buy call on the stock on July 31 at Rs 289 and this stock has given a gain of about 105 percent in five months and thereafter again recommended the stock at Rs 449 giving a gain of 32 percent. So, the trigger for the stock is that all the steel stocks are seen to be quite good, number one. Two, this is an integrated player and if you compare it with Prakash Industries on which we also initiated buy call on July 7 at Rs 108 and who came out with a very fabulous number for Q3 and the commentary which we have heard from the Prakash Industries are also seen to be quite positive. So maybe when you compare Sarda Energy with Prakash Industries, you find Sarda Energy one up on that, though the integrated operations and all that.

Apart from that, in Sarda Energy you have the ferro alloy operations also. If you see again, the integrated operations having a capacity to make ferro alloys, ingots, billets, with all capacity of about 3,60,000 tonne for sponge iron, 2,40,000 tonne for ingots and billets. So taking all this into consideration and the kind of growth which they have been showing in their earning and in fact the best part for Sarda Energy that they declared their consolidated number only along with Q4 i.e. at the year end. Otherwise, they only declare the standalone numbers. Consolidated numbers always have about maybe 60 percent of the standalone operations, there is no barometer or benchmark to factor in or expect the or project the consolidated numbers, but they are always maybe 160 percent to 180 percent of the standalone numbers, what the company is reporting.

If I quickly go by the financial performance in H1FY18, company has already posted an EPS of Rs 27. Taking that into account, we expect that probably Rs 60-62 could be the EPS for FY18 on a standalone basis. As I said, if you take 60-70 percent of that, the EPS will work out closer to about Rs 90-95. Even if you take that into consideration, the P/E valuation or maybe the valuation on a peer basis, also seen to be quite low. Again the better promoter holding, very low debt and all that, promoter stake of 72 percent, all these things goes in favour of Sarda Energy and probably till we see the numbers or maybe in the next couple of months, again the stock will show good up tick but we have given a target of Rs 710 in six months or so.

Anuj: We spoke about it yesterday as well but NMDC has had a huge rally, now there is the OFS overhang, would you buy into this dip?

A: Yesterday also I have said that we are extremely positive on steel stocks and that is the reason we have been initiating the buy call on these two stocks. I have already discussed Prakash Industries and Sarda Energy having given a gain of about maybe 100 percent to 130 percent and in fact same has been the case with our NCLT view when entire market or majority of the experts were critical of the NCLT cases, calling it a zero value or stressed assets, or dirty dozens, all those things is not now seen to be surfacing the kind of fierce competition we are seeing amongst the prospective buyer of all the steel stocks because of the steel sector or the steel cycle is on a big uptick.

I think that this cycle is going to last at least for the next three years as far as the India context goes. I don’t want to go into the details, closure of the capacity in China already we have seen 150 million tonne induction furnace having closed, about 100 million tonne are getting closed. So taking all this into consideration and taking the situation that India will be surpassing Japan and that will be seen quite positive. So if you all these things, where is the raw material, where is the iron ore? Iron ore is very scarce. If you really see the integrated one, Steel Authority has full iron ore or maybe 80 percent or maybe Tata Steel has the iron ore to the extent of about 80 percent. Otherwise all steel producers are not having integrated operations and in that scenario NMDC is going to continue to do quite well and they will be having a production of closer to about 34-35 million tonne for FY18 and because of the Supreme Court having raised the capacity of Karnataka from 30 million tonne to 35 million tonne where again NMDC has a good presence, I think this is an excellent opportunity.

If you recall when about maybe one year back or 15 months back when OFS came in of NMDC at a level of maybe 90 or in two digits, at that time also we gave a screaming buy call on the stock and probably this is again an occasion to buy when the OFS is today made at Rs 153 as a floor price. I think if someone really wants to have a steel stock in portfolio, then NMDC qualifies with a view of about six months or so.

For full interview, watch accompanying videos...