Tulsian's view on Spicejet, Yes Bank, Cairn, Vedanta & others

Speaking to CNBC-TV18 SP Tulsian of sptulsian.com shares his views on way forward for Cairn and Vedanta stocks after the latest development of LIC coming on board. He also spoke about other stocks like Spicejet, Yes Bank, Escorts, M&M among others.Below is the verbatim transcript of SP Tulsian's interview to Sonia Shenoy & Anuj Singhal on CNBC-TV18.Sonia: We have debated this story endlessly with you but now we understand it is in the last lap and LIC could be on board as well what would your view be on the way forward for both these stocks?A: If I take this entire episode of may be last 15 months since the first time the merger was having announced and since then the LIC was not very convinced sometimes you feel that LIC only have one agenda that you consider the share price what is prevailing now and if it is getting swapped to another company and whether I am incurring any loss or not. If I take, just to explain that in a bit Vedanta is now ruling at Rs 172 Cairn India shareholders will get one share of Vedanta for one share of Cairn. Now how you compensate that Rs 30 or may Rs 32 or Rs 28 you are getting 4 preference shares which will be redeemed after 18 months.Generally if you see of shorter term duration of this preference share even they quote at a discount. If I take a discounted value at Rs 95 or may be Rs 9.5 the value comes to at Rs 36-37. So, Rs 172 and maybe Rs 36-37 make Rs 210. Cairn rules at Rs 200 and that is it. Now it is very strange if you see this Rs 40 preference shares which will get issued to the shareholder of Cairn India they will get repaid or redeemed after 18 months from where that money will come. It is so funny that ultimately that money will come from the Cairn kitty only and going back to the Cairn shareholders. An investor like LIC is accepting this as a valid and pragmatic move of merger. That is a very strange number one. Number two – the Vedanta which has been a debt ridden company to a big extent which has been accommodated or have been financed by the Cairn India that repayment will get extinguished because of the consolidation. I don’t know whether LIC will not take these two things into consideration as the very weak financial data for consideration of the merger. If you just have a limited view or limited focus of merging or giving approval of merger of two companies merely based on the share price I don’t think that you need any kind of wisdom even a student of arithmetic of fifth standard can do that. If I am getting Rs 200 compensated with a new set of shares in which I am getting merged with the same value or may be slightly higher value I am fine with that. Except for this honestly, if you really ask me I don’t see any logic for any rational for LIC giving this approval number one. Number two, I have always held that Cairn PLC doesn’t have any interest. If you just see the worth of Cairn PLC we don’t try to dig the value or the worth of the Cairn PLC UK which is not even worth in my view Rs 1,000-2,000 crore also. If you go into the detail the liability which will come of Cairn PLC if not honoured by them will eventually fall on Vedanta or may be Cairn India or the merged entity which is estimated to be at about Rs 10,000-13,000 crore. So, taking all this in to consideration there is no fundamental reason for given approval of merger of Cairn India with Vedanta. However, let us see if LIC gives that approval that will be a very eye opener and need bear thread analysis on what background that has been done.Sonia: SpiceJet is a one stock that you have liked the most in the aviation space what did you make of the comments that Ajay Singh gave out – a 35 percent revenue growth, halving of debt over the next 12 months? Do you think all of that is factored in the stock or do you see more upsides?A: I don’t think that these all are seen factored into the price because we all know that quarter two is always dull for the aviation stocks and that is probably keeping the aviation stocks little quite ahead of the quarter two numbers which will be out in next 45 days or so. However, two things which I have liked about this one is one is of 35 percent growth and second is of the debt reduction to about Rs 500 crore. One thing which has made it clear that if you want to maintain your passenger load factor (PLF) just don’t be aggressive on the aircraft induction because if you are inducting the aircraft on an aggressive basis to allow it to just increase the numbers your PLF will fall and that will be seen quite negative. That in fact puts a lot of pressure on the margin. So, may be third positive is that they are hopeful of maintaining PLF on 92 percent. Actually, post quarter one numbers we have discussed that I have promoted SpiceJet number as my number one pick because earlier my preference used to be on Jet Airways but as Ajay Singh has said that quarter two is always dull so may be post quarter two numbers also I will remain positive on the SpiceJet. Amongst the pecking order I will go with SpiceJet followed by Jet Airways.Sonia: This is one sector that has seen trading pop lately over the last week or so anything in the space that you like? For now we understand that the PMO has asked the Finance Minister to work on a proposal but we have heard things like this in the past. It hasn’t really generated wealth for long-term investors but for a trader anything that you would pick out here?A: For real estate I am unable to understand that to whom the government will make money. There are no litigations as we have seen in case of infra companies where the payments are stuck in the project. Because if you see any real estate developers why they are stuck in the debt because they have gone overboard with their land purchases, they are unable to execute the project. I don’t think that take for instance if DFL book someone in their project or Unitech has booked someone in their project they have not been able to complete how and why government will come and finance them. Will government say that okay you have completed this project it is complete to the extent of 70 percent take the bridge finance and complete the project and hand over the premises to the flat buyer. Honestly I don’t see any logic any rationality in this because these are totally two different things infra is totally different thing where the land issues were involved where the cost warrant was involved and where the arbitration award has come in the favour of the engineering, procurement, construction (EPC) player. This is not the situation here in case of the developers whether you talk of DLF, Prestige or may be Sobha Developers or may be for any other that matter Indiabulls Real Estate or may be HDIL because they all have got set because of their own overboard or may be because of their own problem.So, I don’t think that one should really jump on any kind of news which we are expected which doesn’t any rationality. So, merely if you really ask me I won’t be playing on this theme. Yes, if there would have been some kind of expectation to release in floor space index (FSI) or may be allowing the coastal regulation zone (CRZ) kind of relaxation norms than probably I would have taken a positive view. However, I don’t honestly give any credence to this news which is expected from the government which doesn’t have any rationality. Anuj: We were just discussing Escorts, you in the past of course have been very positive on Mahindra & Mahindra (M&M) but what is your call on Escorts? It has treble from the yearly lows?A: I have just been taking a call on the M&M vis-a-vis Escorts in terms of the tractor sales. If you see the tractor sales growth of 40 percent which has been posted by Escorts has been done by the M&M also because Escorts is a smaller player. It is very easy to pull up the price once you have the stock in the grip. The kind of buying from few high net worth individuals (HNIs) and from the inform circle which we have been seeing in fact the stock has seen pure momentum because if you take a fundamental call I don’t think that any fundamental analyst will agree with this kind of stretch valuations even if you take the valuations consideration even for the next two years working.Tractor sale is the main attraction for the performance of the Escorts as of now. You are going to see that two dull months may be in the August we have seen a flat performance. September will be seen flat or may be slightly improved. October and November again will be showing very good performance for the tractor sales ahead of the rabi season. So, I don’t think that one can really take a positive call beyond a point and actually if you ask me Escorts has already run a way ahead of the fundamentals and it is in my view if you ask me it is ruling 30-40 percent costlier than the fair fundamental value of the stock.Anuj: This morning, Rana Kapoor was quite candid and he did admit that it was a lesson learned. This stock has done well. Initial public offering (IPO) at Rs 45. To be fair, it has generated a lot of wealth and it has been one of your favourite stocks though you did recommend profit taking around Rs 1,100-1,200 or slightly higher than that. At what price is it a buy again?A: Definitely, this is a case of aggressive pricing and which has not got accepted by the qualified institutional placement (QIP) prospective investors and we have discussed two days back, if you recall, day before if it was ruling at Rs 1,400 plus, at that time, I have said that if I have given a buy call at Rs 650-700, in year 2016 and if we are seeing a profit of more than 100 percent or maybe 115 percent, there is no reason to remain invested. And actually at that time I have hinted also that ahead of QIP, too much momentum or too much market making is seen in to the stock which is not seen healthy. But, yes, coming to your point of the re-entry level, I in fact will see the situation getting stabilised and then only we will take a call. Maybe those levels could be Rs 1,200. But as of now, I have remained and in fact on that day, only day before I have said that I am replacing it with RBL Bank and Kotak Mahindra from here on. So, maybe for a while, Yes Bank will be off the radar from my list for recommending as a buy to the investors, but I will review the situation maybe for the next 2-3 days. I am not saying that the bank is not a good buy, but may be even at Rs 1,200 one can look for re-entry into the stock, but I will wait for three or four days to review the buying call again on the stock.