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Mar 14, 2013, 08.32 PM IST
There is a possibility of a diesel price hike and a petrol price cut coming through of at least Re 1. SP Tulsian, sptulsian.com says that reduction in petrol price is more a cost parity price. Since, it is a deregulated one, this will not have a positive or negative, but neutral effect on OMCs.
There is a possibility of a diesel price hike and a petrol price cut coming through of at least Re 1. SP Tulsian, sptulsian.com says that reduction in petrol price is more a cost parity price. He feels it will not have a positive or negative, but neutral effect on OMCs. However, going forward, he said that the diesel price hike will be seen very positively because this will be the third hike.
Tulsian told CNBC-TV18 that Reliance Capital looks good and one can expect a near term target of Rs 392-395.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: Reliance Communication has been the big mover in trade today. Of course, the other ADAG stocks have also participated but this one is in news for some M&A action. How would you approach it now?
A: Possible because the news which has been floating in the market, one doesn’t rule out that happening. Now, people are seeing the remote chances of any kind of arrangement or maybe the tie up likely to happen with Reliance Industries. So, company probably will look to sell some of its assets in bits and pieces. That’s the news which has been floating around probably skipping the stocks alive.
In ADAG, two stocks which are very prominent, one is Reliance Capital and another is Reliance Infrastructure. So, Reliance Capital is moving because of the positive bias now building up for the bank and finance stocks. Even in Reliance Infrastructure, the action seen is that probably it is giving a short covering also. Apart from that, even the infra stocks have all been keeping a positive view. So, maybe yes, the positive view can be taken more, but I will pick and choose Reliance Capital amongst all these three.
Unless and until the conformation comes in for the Reliance Communication, I don’t think that there is much of room to make the stock to move beyond Rs 70. However yes, Reliance Capital still looks good and one can expect a near term target of Rs 392-395.
Q: All of the power stocks have been doing well. Any view specifically on power and what’s keeping it upbeat?
A: Actually the kind of amount which we get to hear for Lanco Infra is just peanuts for the company. However yes, because there are other pending stories for Lanco Infra. They have the 4000 megawatt pipeline under construction, 4000 megawatt under development and 4000 megawatt of their operational capacity.
Any kind of positive indications coming, in respect of the realisations from the state government or discom, definitely makes the stocks to move up. However, I won’t be keeping any extreme positive view on this stock because this is a penny stock. One can easily see a rise of about 40-50 paise.
Overall, I don’t think that story has started building up for the power sector. Today also there has been the meeting between the coal and power ministry having deferred till 21st. Unless and until some positive indications comes in from the government in respect to the coal price pooling or other majors having initiated in respect to the clearances, I won’t be taking the positive view.
The positive factor for the power sector is that we should not see any kind of negative coming in, which we have in fact seen in the last couple of days. If those negative don’t come in the near term, we can say that the sector or the stock looks to have bottomed out. However, difficult to take a positive call or make a case for making entry into these stocks at this stage.
Q: National Aluminium Company ( NALCO ) is down 5 percent ahead of the offer for sale (OFS) tomorrow and there are lots of cautious reports with regards to how this find some difficulty sailing through, etc. What’s your view on what happens with respect to NALCO and how do you approach the stock?
A: I have been maintaining my positive view and I am unable to understand about all these reports coming in. In fact, the strange part is that government has set the base price at Rs 40 while the share was ruling at about Rs 45.
I have repeatedly said that I am not convinced with the valuation of sub Rs 12,000 crore for the company where government should really make the divestment. It is offered below book value and is a debt free company. If one sees their Q3 numbers, they have really been very good. I am not saying that the same trend of the performance is going to get maintained by the company.
However, yes they have been struggling for last four-five quarters in their alumina business because of the poor realisations. I don’t think that one can really write off the company. The only problem is that they have a very high equity base of Rs 1,200 crore which was done five-seven years back when company had some debts and the debts were converted. So, I am not at all convinced that this is not the right time. There is no valuation or substance in subscribing to this share.
Generally, the trend which we have seen and RCF has been a case in point that whatever floor price or the base price is being set by the government generally the offers are coming into those levels only. So, either government should have been little bold that they should have set the floor price at Rs 45. If they don’t find any response, they could have very well deferred it. Secondly, since they have set the floor price at Rs 40, it is bound to get subscribed to closer to that level. I don’t think that even the total price or the average price will exceed even Rs 41.
However yes, one needs to keep a longer view which maybe couple of months and one can see again share moving back to about Rs 48-50. I have been maintaining the same thing for RCF also that right now it is languishing maybe at a level of about Rs 44-45. Even there also, I see the same kind of upmove coming into the valuation. Both are fundamentally very good companies. The valuations which have been set are really quite attractive for the short term investors.
Q: BEML has declined all the way from levels of around Rs 284 to levels of around Rs 193 at this point in time. What is plaguing that stock so much?
A: I think all sorts of controversies. In fact, performance posted by the company has really been very pathetic. In fact this is the reason that all these stocks are going out of focus, whether Bharat Earth Movers Limited (BEML) or Bharat Electronics Limited (BEL), Manganese Ore India Limited (MOIL) or stocks like Engineers India.
No kind of growth is seen there and all kind of poor financial performance is coming in from these companies. So shift is taking place from all these PSU stocks.
Q: Any thoughts on approaching OMCs before the possibly of a diesel price hike and a petrol price cut coming through of at least Re 1 in the next two days?
A: Reduction in petrol price is more a cost parity price. Since, it is a deregulated one, things are really moving quite smoothly there. So, I don’t think that the effect of that will be seen very negatively that the reduction has happened in petrol. Those companies are not allowed to make any profits but they don’t want to lose anything on that front also.
So, that will not be seen as a positive and negative, it will go neutral. Going forward, the diesel price hike will be seen very positively because this will be with a third hike, which has been consistently happening in the middle of the month. The proposal of the staggered hike was mooted by the government and that is happening very smoothly without any kind of opposition from any of the quarters whether the political parties or from the actual users.
So, if these things keep happening, probably this will overall be seeing positive for the oil sector. Upstream companies should benefit more because of the expected lower burden. The sentimental effect is seen more in case of oil marketing companies. So, maybe the upside of 2-3 percent can be expected till this hike happens in these next couple of days.
Q: The other big play on HUL is real estate monetisation. Would you play HUL simply for that reason?
A: I won’t go for that because the total quantum, they have been monetising their residential property. Their other commercial assets and maybe so of the large, but that chunk is very small. I don’t think that that can really be seen as a trigger for any fundamental analyst to take that call.
May 21 2013, 13:56
- in Results Boardroom
May 21 2013, 11:05
- in MARKET OUTLOOK