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Last Updated : May 16, 2016 07:20 PM IST | Source: CNBC-TV18

Positive stance on UP based sugar mills: SP Tulsian

In an interview with CNBC-TV18, market expert, SP Tulsian gave his views on various sugar stocks and sais that he keeps a positive stance on UP based sugar mills.

In an interview with CNBC-TV18, market expert, SP Tulsian gave his views on various sugar stocks and said that he keeps a positive stance on UP based sugar mills. 

He also gave his outlook on Nilkamal, Maithan Alloys, Triveni Engineering and Indiabulls Real Estate.

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

Latha: Any of the midcap stock numbers stood out for you, we were discussing Nilkamal and Maithan Alloys earlier in the morning, what worked for you over the last 72 hours the numbers that came out?

A: Whatever numbers we have seen, good numbers already the market has given thumbs up to all those numbers.

You can add the results of Zee Learn also in that category apart from Maithan Alloys and if you see the Thirumalai Chemical, in fact, those numbers have been very good and in fact that is because of the key raw material.

In fact, sometimes as you have added for the Maithan Alloys and Nilkamal Plastics they all have shown very good numbers and that’s the reason in fact, all of them are seeing doing quite well today.

Latha: I just wanted to get you on what Anshu is telling us, is this going to become more difficult for companies to have mergers and acquisitions (M&A) in the cement space?

A: Two points which Anshu has mentioned that, she has mentioned that 80-150 percent of the raw material price or may be the mineral price, I am unable to understand whether the government will estimate the total reserve which a mine is holding and if that is so, I don’t think that is realistic because you have to work out, as it has happened in the case of auction of the coal mines.

You cannot calculate the estimated reserve of the mine and entire amount is asked upfront, that is never feasible, so I am unable to understand the capital value has to be assigned which will be paid in one go to the government whether it goes to the state government or to the central government that’s number one.

Number two, if it is seen on the realistic basis because all these mines transfers are seen to be inevitable.

I don’t think that M&A things will stop because if the M&A will not happen because of this stiff premium, which will be asked by the state government or by the central government on transfer of the mines then those will again get reduced because this has been done with intent to ease the pressure of the non-performing asset (NPAs) and to have the consolidation M&A space getting, allowing it to get take off, so yes the amendment will come and secondly it has to be on the capital value which will be paid one time or may be if it is deferred payment, may be the interest element can get added, but I don’t think that it will be calculated to 80-150 percent on the mineral cost.

Sonia: You were telling us about how you need to see what the inventory levels are that many of these sugar companies have. We did speak with the management of Oudh Sugar a couple of hours ago and they told that there is a huge inventory of almost 2.7 million tonnes that they are sitting at, at a price of Rs 27 a kilo, so there could perhaps be a big profit from here on as well. Would you buy the stock now, Oudh Sugar?

A: That’s right and in fact, if you see as you have said that I have pointed out that inventory and the valuation two things are very key. In case of Oudh Sugar, we have seen 27 lakh of bags held by company at sub Rs 27 at Rs 26.40 they have indicated.

If you take the present prevailing price at Rs 34 plus that means they have an unrealised gain of Rs 7 per kg and that translate to a profit of about Rs 175 crore and I am not expecting the prices from here on if it gets hardened, which is most likely and the interest cost per month is not more than Rs 0.30 per kg to the mill, so even if you net that off the Rs 175 crore unrealised gain is there in the inventory held by the company that’s number one and in fact, if you see the small company may be Uttam Sugar which is again a very small company they also declared the results on Friday and Saturday and if you see the profit after tax (PAT) of Rs 68 crore against the loss of Rs 16 crore in the Q3, so my point is that this inventory is only held by the UP based sugar mills.

You won’t find this kind of inventories held by any of the Andhra or Tamil Nadu based sugar mills or may be such a sizable quantity. Yes, inventory gain has to be considered.

Today, we will be seeing the result of Triveni Engineering also again I am expecting that Triveni Engineering will also be having an inventory of about 33 lakh bags as of 31 March, so yes I am keeping my positive stance on all the sugar stocks going forward from here as well because all these inventories will get liquidated in next 2-3 quarters, so you are going to see the huge kind of profits coming in for Q1 and Q2 also which are always generally seen to be dull and boring quarter because of the non-crushing season.

So yes, keeping a positive stance on few UP based sugar mills.

Sonia: I wanted your thoughts on Indiabulls Real Estate I mean that stock has been hitting new highs everyday ever since it announced the merger of that Indiabulls Property Investment Trust with itself. What effect do you think the consolidation will have on the merged entity as a whole and how would you approach that stock now?

A: I express earlier also my view that there I see two reasons, one is of this merger no doubt that the debt on the consolidated basis in the books of the company will rise, but that will see the volumes also seeing surging quite high, so that could be one reason.

Number two, the increase in the floor space index (FSI) because if you see the plans which has been proposed by BMC for Mumbai City they are planning to increase the FSI from 1.33 to 2 and if you see the projects of Indiabulls they have a very strong presence in the Central Mumbai, where the development works are still going on, so they are seem to be the beneficiary of those things as well, but let’s not forget that the stock has moved from Rs 54 to Rs 84, may be in last just one month or may be 45 days may be the stock should take little pause here and may go from in the second round of rally from thereon, but yes for the time being may be for next couple of months, I expect that stock to consolidate but continue to have the positive view on the stock.
First Published on May 16, 2016 06:50 pm