Here's why Tulsian is upbeat on Jet Airways, SpiceJet

SP Tulsian, sptulsian.com in an interview to CNBC-TV18 shares his rationale behind his bullishness on aviation companies like Jet Airways and SpiceJet.

He also shares his views on NMDC and Bharat Financials Below is the transcript of SP Tulsian's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18. Sonia: You have been a big buyer or you have been very positive on some of these aviation companies. This seems to be a big positive: the 25 percent to 1 percent slash down. But, what kind of an earnings per share (EPS) impact do you think it could have for these companies? A: Firstly, this is seen a big positive news for the aviation sector. Now sometimes, if you really ask me, sometimes I feel that what has compelled the Delhi government to really go for a cut from 25 percent to 1 percent. This is not something for the social things and all that. But, leave aside that, definitely, this will be seen a big benefit to the aviation sector. Now we all know that there are only 5-6 airports which consumes the maximum aviation fuel and in fact, I would say that probably 2-3 airports or maybe two, Mumbai and Delhi and that is the kind of offtake. It is difficult to quantify that what kind of offtake is done by all the airlines on an average basis from Delhi and Mumbai. But I presume that maybe 33 percent will be from Mumbai, 33 percent from Delhi and maybe about 25 percent from Hyderabad, Bengaluru and maybe Chennai and then remaining about 10 percent from the other airports. So, that will be seen quite positive for all these airlines. And definitely, whenever you have these kind of reduction entire amount is not seen getting passed on as Dipan has said. I agree partly with Dipan that things are passed through and the GST subsume of the aviation fuel tax you will be having the uniform tax rate. But if Delhi has taken this initiative, obviously, that will get followed by other states also. But even if that does not happen and if you have the interim period of three months which will get enjoyed by the airlines with the best season coming in of these holidays and all that, this will be seen quite positive. But as we do not know that how much pass through will be there, difficult to take a call on the earning growth or maybe the EPS growth. But as I said, this will be seen definitely not sentimental positive, but this will definitely be seen improving the fundamentals. So, taking that into consideration with Jet Airways having moved up Rs 75-80 in this last one month, still I maintain positive view on Jet Airways followed by SpiceJet. On IndiGo, I have been keeping a cautious view because of the non-rerating of the stock post its correction from Rs 1,300 having taken place, but overall positive for all three airlines, but more positive in the pecking order with Jet, SpiceJet and IndiGo. Anuj: The other stock of the day today has been NMDC. That stock is down 5 percent as we speak. Do you see this as a buying opportunity or considering what is happening globally with the way iron ore prices have fallen from the peak of USD 96 to sub-USD 90 per tonne? Do you think that could be a risky trade? A: We have to read this news in context. If you take the iron ore prices movement in this last six months, they have moved from, I do not have the exact detail, but they have moved from maybe USD 52-54 to USD 95. Now, entire amount, NMDC never fixes the price based on the import parity prices. So, it is futile to take that call, number one. Number two, if you see, NMDC have been continuously raising prices from October onwards that is October, November, December, January and February because they set the price target every month and even on the first week, on March 1, they have increased the prices of lump and fines by Rs 100 per metric tonne and that prices are going to remain for the whole month of march. So, definitely, because Q3 if you see in NMDC, they had 3-4 exceptional items to the extent of about Rs 700-800 crore, so there was seen a kind of disappointment from the working of NMDC otherwise the bottomline would have been Rs 1,000 crore, number one. Number two, yesterday we have seen an interim dividend of Rs 4.15 from the company. That was also seen mildly negative by the market so I think that this is just a sentimental thing. Q4 probably will be the best results to be seen from NMDC and as I said, I will not be expecting to see a profit after tax (PAT) of Rs 1,000 crore plus from the company from Q4. So, yes the reduction, I do not think that this is going to impact for whole of month, the price revision never happens in the interim time. And even if you take now, the price at which NMDC is selling at about USD 50-55 per tonne and if you see the domestic steel scenario, post this minimum import price (MIP), this dumping having stopped and MIP having introduced, this all the steel producers are doing extremely well. They have no other option, they just cannot look for importing the iron ore. Either they have the captive linkages of the iron ore mines with them or they buy from NMDC. So, the offtake of NMDC is going to remain at the same level because the steel production of the country has increased by about 6 percent in this last six months and this situation is going to remain quite positive. India has become an exporter also on the mild steel front. So, taking all this into account, I am not at all worried and if you see the price behaviour, NMDC has moved from Rs 100 to Rs 150 in this last four months. So, some kind of correction is bound to be seen, but I do not think that situation is looking as bad as market is taking it to be because of the reduction in the imported or the global prices if iron ore from USD 96 to USD 90 per tonne. Sonia: Bharat Financial It is still market speculation on when that deal will come through and if it will come through, etc. but clearly, the stock is getting very active now, up almost 5 percent odd. At this point, what should you do at this level of Rs 850? A: If you take a call, first in isolation, if you remove this IndusInd Bank or RBL acquisition news because there has been flip-flop, we have heard last week that IndusInd Bank has called off the deal because of the rich valuations. Definitely, Bharat Financial is seen to be ruling high or maybe at rich valuations amongst the microfinance space when I compare it will Equitas Holdings or when I compare it with Ujjivan Financial Services. But, still I think that once these kind of negotiations start for acquisition, it generally gets consummated in the deal. Maybe if not with IndusInd Bank, maybe with other banks like RBL Bank and all that. But the kind of, the only worry which I have seen in case of Bharat Financials and that too if I go by the trading, the price pattern of the stock in this last three months, what has scared me, if you recall I gave a buy call at Rs 475 about a couple of months back when the street was all negative when it corrected from a level of about Rs 800 or so. So, I was expecting that probably some kind of selling will be seen in this stock and it may see a level of Rs 720-725, maybe in the near-term, probably in this series, but that has not come through and the stock has bounced back from a level of Rs 770-775, maybe yesterday or day before. So it is very difficult to take a call but yes, if the deal gets consummated with IndusInd Bank. That will definitely be seen positive, but beyond a point, maybe a level of Rs 880-900 because if the indications have come that IndusInd Bank have found the valuations to be rich, they will reconcile themselves to go for acquisitions at a rich valuations but not beyond a point. So, maybe market will not reward the shares beyond a point of Rs 875 or Rs 880 where it is seen to be having a resistance as well as the valuation cap as well. Sonia: I wanted you to comment on this statement that we are getting from the Delhi Finance Minister that the Aviation Turbine Fuel (ATF) cut is only for those flights that come under the regional connectivity routes, not for all flights uplifted from Delhi. So, that changes the game because it is not as much saving on operating costs as we thought earlier. That was the point that you were making as well. How would you react to it? A: I do not think that news is anywhere relevant or in any way positive, number one. And in fact, if you recall, I apprehended that how can Delhi government be so generous of cutting the fuel rate by about 24 percent. And second if you really see this regional connectivity, that is not the job of a state government or maybe a government like Delhi to take care of the people who are travelling north east or maybe extreme north. Those things are not relevant here. And again, as Anuj has expressed that what will be the modus operandi? Maybe suppose for instance, if a flight is going to Bagdogra or maybe Dibrugarh and if they go via Kolkata, if they give the declaration that this will be used for the regional connectivity, there will be a lot kind of litigations and all that. So, I do not see this news at all relevant. In fact, this will create more, and I do not think that even airlines will be cheered to have any kind of pleased with this announcement.