In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his readings and outlook on the market outlook and specific stocks and sectors.
Below is the verbatim transcript of the interview.
Sonia: First I wanted to ask you your view on Reliance Industries and what kind of net present value (NPV) up move are we essentially looking at post the announcements that came in yesterday?
A: Yesterday I expressed my view post the press conference because if you take a call now, right now I won’t be taking a call on the monetisation or the earnings calculation on 30-35 mmscmd which we will be seeing from three projects. However, 12 mmscmd is being considered that too that will start coming in from 2020. If you take a call because unless and until you have a price realisation, because there have been uncovered questions which have not been answered or there have been lot many things disconnect. One on the schedule or period of the capex of Rs 40,000 crore, but apart from that, the unanswered question is what kind of realisations we are expecting from the gas.
Even if take USD 7.5 per mmbtu for the gas which will be seen from first of the field, i.e. ‘R’ field, and if I take a 12 mmscmd as the production, the revenue is estimated, in fact I don’t think that anyone has given the quantum of that which is very important, the turnover works out at Rs 8,000 crore and I don’t think that the EBITDA of more than 40-45 percent can get expected. So, it is very difficult to take a call that what kind of investments because the investments amount having invested earlier on all these fields have not seen having yield any results.
Rs 32 crore having invested in British Petroleum (BP), again both the promoters were silent on that that what has been the fate of the earlier investments having made and what will go into the amount of this Rs 40,000 crore on the field and off the field i.e. in the sea either for creating the fuel stations and all that and how much will be for the gas exploration. So, it is difficult to take a call.
However, still if you want to take a call, I won’t be taking it very significant, maybe an amount of Rs 20-25 can be attributed to the net present value, taking the value as of today discounting the 2020 earnings which I said which can yield an turnover of about Rs 8,300 crore calculating at the USD 7.5 realisation per mmbtu.
Anuj: You have a stock idea for our viewers today?
A: I am recommending Aksharchem. This is a dye and dye intermediates company. If you recall, last March 30, I have given the indications when suddenly the prices of dye and dye intermediates started moving in and this time also there are I won’t name the two listed companies which may be affected but in Padra near Vadodara, the pollution problem is seen cropping up which will be seen negative for two of the companies, in fact three companies are getting affected severely because of that and I won’t be surprised to see the stoppage of the production also. So, that will be seen as an advantage to Aksharchem because Aksharchem is a fully pollution control compliant and second company is Bhageria Industries on which I am director as a matter of disclosure.
Both the companies are in no way affected. I am not saying that because I am director but that is the ground situation. Two listed companies which are operating in Padra, they are facing the pollution problems. So, whenever these kinds of events happen, you have to foresee these events, when they happen suddenly you see the prices of H-acid and vinyl sulphone starts moving up which are the two critical raw material for making dyes. In fact for making dyes, both are dye intermediates. Aksharchem is a market leader in vinyl sulphone controlling 45 percent of the market from India to exports and that is the reason the FY17 has been excellent for all these dye intermediate makers.
If you see the company in FY17, they have shown a topline growth of 40 percent to about Rs 265 crore, but PAT has tripled. PAT has shown more than 200 percent growth. PAT has increased from Rs 17 crore to Rs 52 crore. So any pollution control lapses on part of the other three plants which are operating in Padra, Vadodara of which two are listed, if that has any reflection, the major orders will flow to the company like Aksharchem and all that. Apart from that, the company is carrying out the capex of about Rs 175 crore. They are the world leader in CPC Green which is dye about controlling 10 percent of the market and they are putting up fresh capacity in the dye and dye intermediate space.
H-acid 1,200 tonne per annum, violet 2,300 tonne per annum, CPC Green 2,200 tonner per annum, total capex of about Rs 175 crore to be met from the internal accruals. I am expecting that probably in next six to eight months, or 6-12 months, all the products will go operational. So, taking all this into consideration, debt free balance sheet, promoter stake of 70 percent, EPS was Rs 71 in FY17 which I am expecting to move up in this year also, I have not quantified the amount. So, taking all this into consideration, share is now ruling below Rs 760 looks a good buy and can move to a level of Rs 945 in next six months or so.Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.