Selectively, midcap cement, a little bit of midcap infrastructure and selective consumption stocks look very attractive, 66826409 66824625 66822916 Mayuresh Joshi, Fund Manager, Angel Broking, tells ET Now. Edited excerpts: Yes Bank must be a complete ignore especially after the Moody’s downgrade yesterday. Absolutely. The raising of corporate governance issues point to the volatility one can expect in the stock price. Add to that, what probably comes out in terms of the RBI divergence report are the hierarchical changes, the leadership issue and the capital raising plans. Capital needs to be raised as soon as the new CEO comes on board, if Yes Bank has to sustain the advances growth in excess of 25-30% that they have been doing so far. All these factors will act as headwinds for the stock. The settlement talks, the kind of repayment from Rana Kapoor’s holding companies that we have heard about are sentimental boosters but it is mostly the headwinds that will play impact the stock price in short to medium term. From an investment standpoint, in 3-6-18-months, where do you see a 15-20% upside? Our thesis is that with the front loading that the government is doing, which is very evident in terms of the order flow, specifically towards the capital sector, infrastructure/cement should start reviving going forward. A few of the companies within the infrastructure pack did report a decent set of numbers, like what you saw in terms of the front-loading of the order book for L&T. A lot of the capital goods companies came out with a very decent set of numbers in terms of execution. That leg of the market probably will see significant improvement as we had in Q3 because in Q4 the orders will start getting postponed. In the midcap universe, we continue to like midcap cement stocks. Input cost pressures have dented EBITDA per tonne but as the monsoon season is over, volume offtake will improve and offset the cost pressures. Having said that, we continue to like Heidelberg Cement. Heidelberg Cement is specifically in the central part of the country which hasn’t seen any new capacity additions. It has put out a 12-MW captive power plant. When you are talking about recovery, reducing power costs and transit periods will help bring freight costs down as crude has corrected significantly. The utilisation levels are quite optimal at 85 odd per cent and expectation of EBITDA per tonne is improving from $720 reported by FY18 as a whole over the next couple of years should hold the stock in good stead. Stocks like Bata also are good because of the earnings growth from expanding into tier II, tier III towns and foray into ladies footwear with a higher margin growth (from 30% to 40 odd per cent) largely in terms of sustained capex aiding volume and earnings growth. So, selectively, midcap cement, a little bit of midcap infrastructure and selective consumption stocks like Bata look very attractive. Times of India reports that Nestle is winning the race to pick up Horlicks. But it is really about the valuations. What does Nestle see in Horlicks that they are willing to pay top dollar for it? You are absolutely right and it will all boil down to what valuations the contender is expecting to pay for Horlicks. Now the kind of market share that Horlicks has at this point of time it is quite substantial but what kind of an earning compounder can this be in terms of an acquisition and how accretive does it become to the earnings profile of the company has to be seen. Nestle is expected to add on a whole host of value-added products. They have already started that spree in terms of adding products across ranges and categories but what kind of ramp up does this have in terms of volume growth and specifically realisation growth is something to be seen. So, let us see the developments in this case and what kind of deal accretive valuations Horlicks actually goes out for. How are you looking at the IT basket in the wake of rupee appreciation? Are you taking some profits off the table or you are bullish for long term on the largecap names? The rupee depreciation against the dollar does act as a tailwind for the IT stocks but only to a certain extent because a lot of these companies do have their hedging policies in place. The rupee equation probably works out only to a certain bit and again the tailwind has got reflected in prices of all these stocks. Talking about core fundamentals, the top IT companies did report a solid set of numbers with stellar dollar revenue growth and constant currency growth. The deal wins that came through from the digital arena were quite significant and the investments that were earmarked a few quarters back, are clearly reaping fruits. Digital orders both in terms of execution as well as margins are very accretive. All developments in terms of visa costs, wage hike is largely behind. Q3-Q4 is probably full of furloughs and working holidays. Clients’ budgets are being decided in Q4. So, the second half typically is a little bit soft for IT companies but the management commentaries have remained very solid. Our own sense is that these companies are probably embarking on niche opportunities specifically within the digital space segments like retail. Manufacturing green shoots in BFSI are holding up for these companies as well. Tech Mahindra is something that I have liked in the past. HCL Tech’s organic growth is expected to improve. These can be potential outperformers. Within the midcap names, I will be a little bit more specific but within largecaps, these two names can do well over a long period of time.
from Economic Times https://ift.tt/2KD9LRB
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