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Last Updated : Aug 31, 2016 10:09 PM IST | Source: CNBC-TV18

Tulsian's take on construction cos, Zee, RBL Bank & other stocks

In an interview to CNBC-TV18 SP Tulsian of sptulsian.com shared his view on construction companies after the Cabinet today tweaked arbitration norms to get stalled projects moving.

In an interview to CNBC-TV18 SP Tulsian of sptulsian.com shared his view on construction companies after the Cabinet today tweaked arbitration norms to get stalled projects moving. 

He also shared his views on other stocks like Zee Entertainment after the company sold off Ten Sports to Sony, RBL Bank which listed on the bourses and BPCL which declared its quarterly earnings today, among others. 

Below is the verbatim transcript of SP Tulsian's interview to Anuj Singhal and Latha Venkatesh on CNBC-TV18.

Latha: First up this construction relief, would you pick and choose from that entire basket of construction companies, which one you would like?

A: I am not taking only positive view on the construction or the contracting company in fact this will be having a far reaching impact. First, definitely the liquidity if get released to the construction companies, that will augment their working capital and that will enable them to expedite their fresh contracts or speedup the contracts which have all been under execution number one.

Second will be big relief to the banks, because of majority of these payments get recovered by the banks from the construction companies or maybe the EPC player and third the acceleration of the process, because in fact this shows the intent of the government in the right spirit, because if the arbitration award has been issued, you always have the layer of litigations or the judicial reliefs available. You can always move to the High Court and then to the Supreme Court and we all know that if the litigations go on like this, then you are in fact killing the economy and infrastructure is the key growth driver at the current point of time.

This is going to be seen quite positive, will have a spiral positive effect on all on banking, financial system, infrastructure sector, new orders will come in, improvement in the existing working and profitability of the company, so overall quite positive, but yes one has to really understand that what all the companies are holding the awards in their favour, where they will get 75 percent of the amount released, but I will not be confining only to those companies because as I said that the process of acceleration of the execution of the projects or take the case of many of the projects are available for change of hands for monetisation.

Even that will give a good leeway and strength to the companies those who have the capability, because of this liquidity getting released in their favour. So overall, I am seeing this as a very big positive and very big growth driver for the sector, banking and EPC players.

Anuj: In that context, the stock of the moment right now is IDFC. Do you think it warrants an 8-10 percent surge on this news?

A: One may dispute on the quantum of the rise, which we are seeing now, because it is very difficult, because if you are taking a positive call as I said that I am in fact taking more positive call on the lenders, because if you really see practically the entire amount is seen as non-recoverable by them, because many of the lenders and maybe the analyst have accepted that whatever amount is stuck and with the litigation which we are going to see or going to get fought against the arbitration award in the High Court and then in the Supreme Court will take ages and practically that amount was written off.

I won’t hesitate in saying that the largest beneficiary will be the bank, because take for instance if a company like HCC or Punj Lloyd recovers an amount of Rs 2,000 crore, ultimately that amount is getting recovered by that contractor for the banks and ultimately the amount is going or liquidity is going in favour of the bank, so yes the financiers or the lender or the lending agencies are seen to be the highest beneficiary, but overall if you take a call, it is difficult to decide that what percentage of rise should be seen whether in IDFC or maybe in other stocks like maybe PFC, REC in fact take any kind of infrastructure projects, but overall positive for this. I won’t be able to comment on the particularly rise on IDFC, because IDFC has many other issues as well and maybe this could contribute one of the positive contribution seen coming in for that stock and must have moved because of that by 8-9 percent.

Latha: Your take on Zee Entertainment?

A: This is definitely a good deal because 4 times of the sales and the market was speculating at around Rs 2,000 crore and in fact on part of the management, this is seen to be more a courageous and strategic move, because they have not been seen biased or attached with this loss making business and honestly the company would not have succeeded even if they would have prolonged, but the question comes of that what will they do with this cash of about Rs 2,500-2,600 crore and maybe about Rs 1,500 crore they already have and even if I presumed that about Rs 1,000-1,500 crore, they may go aggressive in the marketing of their existing channels and all that.

I have heard Vikash saying that that the promoters are seen generous in distributing the surplus to the shareholders, but I don’t think that, that will happen one because promoter stake is low at 43 percent, so if you really see the present situation cash is always required for your organic growth number one.

Number two, if you are distributing the cash amongst the shareholder, you are just paying 22-23 percent as a dividend distribution tax and even if you go with the share buyback, this will result into a buyback of maybe about 3 percentage so I don’t think that either of the increase dividend payout or as a special dividend or share buyback will be seen by the company, but they will definitely be either must be having new channels in the pipeline, whether in the general space or maybe in the regional space or they will aggressively to in advertising their prime channels to keep the position or maybe to elevate their positions on a sustainable basis, because if you see the Zee Cinema that is also quite growing channel in this last 3 or 4 years and in fact that also seen a dramatic turnaround in this last 3 or 4 years.

So difficult to pinpoint at this stage that what will be their strategic move, whether addition of new channels or the aggressive marketing in the existing portfolio, but I am not expecting any buyback or any special dividend. Buyback is not ruled out, but at least special dividend is not likely to see happening because of the low promoter stake of 43 percent and dividend distribution tax burden of 23-24 percent.

Anuj: But RBL is now up 35 percent, temptation to book some profit or is this one way you just lock it in demat account and just forget about it?

A: I won’t say that everything doesn’t have the profit booking levels, even in case of Ujjivan when I said a screaming buy at Rs 210, I gave a profit booking call at Rs 420-440 though it went up to Rs 550 also. Maybe it all depends at the pace at which starts moving up, suppose say for hypothetically if the stock moves to a level of Rs 400 or Rs 450 next couple of months for RBL Bank.

Definitely, I will say that you book the profit, but I have been taking a consistent long term call since the launch of this IPO and I have said at that point of time that if you have 40 percent growth visibility seen for FY17 and FY18 over FY16, you have no reason not to take this call and the kind of run up and the kind of value creation, which we have seen having demonstrated by many of the bank like IndusInd Bank after Mr Sobti have come in or maybe Yes Bank since its inception, I am not comparing it with HDFC Bank.

I have seen some of the experts comparing it with HDFC Bank, but that will be just daydreaming, you can compare it with Yes Bank, because they can grow pan India. Presently, they are present in the 16 states, so yes this stock is definitely meant for long term holding for about next 2-3 years view. You can expect a return of about 30 percent on an annualised basis for next couple of years in terms of the share price, because if the growth is likely to get demonstrated of 35-40 percent in the bottom line and maybe in the asset quality.

I don’t see any reason why 30 percent return is not seem to be seen in the share price, but as I said if it moves Rs 400-450 hurriedly in next couple of months, I won’t hesitate to give a profit booking call as well.

Anuj: Your first thought on the BPCL numbers? We have the net profit number which has beaten the estimate and we have the gross refining margins (GRM) which is USD 6.09?

A: Definitely, numbers are disappointing because if you see Rs 2,600 crore that itself is the absolute number, because you have a major constitute of the inventory gain, which even if you compare it with HPCL which have an inventory gain of USD 2 and they had GRM of USD 7, so net GRM was closer to around USD 5 and this BPCL has posted a GRM of USD 6 and even if you presume USD 2 as an inventory gain, then definitely this GRM is seen disappointing and even the absolute profit after tax (PAT) number is seen disappointing.

Anuj: You want to offer some comment on this one. Reliance is now trading at the lowest point down about 1 percent?

A: Maybe market is expecting something negative against Reliance Industries will be seen in this gas migration, because if you really see the case or the developments which have all been appearing in the media, that was establishing the case and maybe market is fearing that some kind of penalty which can run into half to USD 1 billion can all get levied and ahead of the AGM also tomorrow morning, because the only trigger which we see tomorrow morning in AGM is the launch of Reliance Jio which I don’t expect that any kind of timeline will be given by the chairman tomorrow, so maybe ahead of the AGM this profit booking is seen, because the stock has also seen a good run up in this last maybe couple of weeks and seeing ruling closer to it resistance level of Rs 1,080 or Rs 1,090, which has been a resistance over a longer period of time.

Disclosure: Network 18, which publishes moneycontrol.com, is now part of the Reliance Group.
First Published on Aug 31, 2016 10:09 pm