Here are some fundamental views from SP Tulsian

In an interview to CNBC-TV18’s Latha Venkatesh, and Sonia Shenoy, SP Tulsian of sptulsian.com shared his readings and outlook on specific stocks and sectors.

Below is the verbatim transcript of the interview.

Sonia: Plenty of stocks in focus this morning, let me start with Vedanta and Cairn. Finally the merger has received the final approval. How do you approach both those stocks here on?

A: Cairn is now getting merged into Vedanta but I don’t see any difference happening in that front. If I first come on Cairn India, they will be getting four preference shares with a coupon of 7.5 percent which again company has arranged a third-party for buying within 30 days. So, those who will be getting those preference shares can redeem them at par in the next 30 days. Apart from that, they will be getting a dividend of Rs 17.70. So, if I add both these things, probably the book closer or record date will get announced for swap of these shares.

If you take these things into consideration, there is a gap of maybe about Rs 51-52 between the share price of Cairn and share price of Vedanta, and both these things, as I have said, that Rs 40 and Rs 17 makes Rs 57, but there will be some discount element because the window of buying back will be in the next 30 days from receipt of the preference shares. So, I don’t think that there is much arbitrage play as well. If you say that 1.5 percent is arbitrage play, I don’t think that that can really be played by the retail investors by paying the STT and delivery brokerage and all those things.

So, maybe the life will be as usual for Vedanta because things going on from here that oil also has come in the basket of the broad portfolio of Vedanta. However, the real kicker for Vedanta from here on will be the acquisition of the residual stake because they are already holding 65 percent stake in Hindustan Zinc. So, real kicker for Vedanta from here on will be acquisition of the residual stake of 29.5 percent of the government and thereafter probably the merger of Hindustan Zinc with Vedanta because in that case, Vedanta will be holding 94 percent and I don’t think that they will be comfortable in diluting it. Instead they will go for merger of Hindustan Zinc also into Vedanta.

So, taking all this broad perspective into consideration, Vedanta is becoming a giant of the natural resources which will be having iron ore, lead, zinc, crude oil, aluminium, so entire thing in one basket of the natural resources company Vedanta will gradually be becoming. However, as far as this Cairn merger is concerned, I don’t think that there is going to be much changes in the pattern of the share price of both the companies from here on.

Latha: The big marriage that was signed, sealed and delivered yesterday was the Aditya Birla Nuvo- Grasim Industries merger and of course more importantly the demerger of the financial services wing. How would you approach AB Nuvo and Aditya Birla Money, which you spotted?

A: Both the companies have sought the shareholders approvals. They may be having at least couple of months to have the other formalities getting completed for merger of AB Nuvo with Grasim because thereafter the merged Grasim entity will be taking up hiving off the AB Financial Services, which you may call as demerger of AB Financial Services, AB Money is part of AB Financial Services. Therefore, in the second process, the merged Grasim entity will be giving the shares to their shareholders including shareholders of AB Nuvo - those who have come in in the fold of Grasim. This is just a regulatory procedures having cleared by both the companies that is Grasim and Aditya Birla Nuvo.

However, generally in case of such companies, the merged company always rules at a discount of about 3-4 percent or maybe 4-5 percent but this kind of discount is not seen between the share price of AB Nuvo and Grasim. There is discount but discount is narrow to the extent of 2.5-3 percent maybe because both the stocks are into Futures and Options (F&O) and people have been taking it for granted that this merger will go through.

So yes, things are looking better but on a standalone basis on Aditya Birla Money, I do not think that this needs investment consideration now because having recommended the stock by us about couple of months back at Rs 30 and if you see, the share price having doubled in the last four-five days without much of an event having seen, I won't be attributing this kind of rise merely on receiving the payment bank licence by the group.

So taking all this into consideration this is a positive move that things will get merged with Grasim going forward from here on and then people will again start taking a call for demerger of AB Financial Services from Grasim and that will take about three months thereafter or maybe two-three months thereafter. So the process will have a timeline of about two-six months; management has said that by Q2 of this financial year things will get completed. So this is just one of the hurdles having cleared or one of the compliance having done by the company, but the final merger will still be about couple of months away for AB Nuvo into Grasim.

Sonia: We discussed this yesterday, some of these transformer companies, anything that you would still put money into now?

A: It is difficult for any lay investors to classify the transformers into different category as the promoter of Transformers and Rectifiers has said. However, we have been in fact keeping our extremely positive view on all the transformer makers for last three or four months because if you see, there are very high voltage transformers which are made by GE T&D, then you have a different class of transformers made by Voltamp Transformers or Transformers and Rectifiers, Bharat Bijlee.

So, in fact we are extremely positive on all because if you need the power consumption to go up, you will be requiring transformers. Generally the transformers are always used by the T&D companies mainly like Power Grid where you have seen the capex of Rs 2 lakh crore having lined up. Just imagine by 2020 if you have power in entire UP, UP constitutes 16-17 percent of the population with 21 crore people staying there, so, that will see a lot of power consumption getting increased and that will create huge demand for transformer not of the capacity which are not made by Transformer and Rectifier, but overall. So, we are keeping positive view on CG Power, GE T&D, Transformers and Rectifiers, Voltamp Transformers, all kind of these stocks.

Latha: Can you give us some advice on Power Finance Corporation (PFC) and REC?

A: Positive view on both because everything is linked to the power generation. If you see the power consumption going up, the plant load factor (PLF) of all the power generators – there are many generating companies and that will stand to gain to the financiers. We have seen that the stress loans are existing largely into the steel, power generation, and infrastructure. So, if we see the PLF of all these companies increasing, those who are into the generation space, the operating leverage will be seen coming in their favour and since PFC and REC are dedicated financiers to power generation companies, obviously they will also stand to gain immensely from this.