Sectors like metals, autos and oil and gas ould contribute little more in FY14 as compared to IT or FMCG sectors, which did well in FY13.
Fourth quarter earnings were a mixed bag given that sectors like pharma, fast moving consumer goods (FMCG) and automobiles performed well, but cement and industrials held back. So, one cannot be sure of which way the earnings momentum is heading, Dhirendra Tiwari, Antique Institutional Equities said.
However, he estimates FY14 earnings growth at 16% resulting from an earnings per share (EPS) of Rs 1,400. "Concentration or shift of earnings will take place in FY14. Sectors which would contribute little more in FY14 could be metals, autos and oil and gas as compared to IT or FMCG sectors," he told CNBC-TV18.
From the capital goods space, Antique is bullish on Crompton Greaves and is neutral on Voltas. Coal India is his preferred pick from the in the utilities and infrastructure sector. There are three basic catalysts for Coal India - Production growth, dispatches growth and price realisations. Though the stock may get impacted by external factors in the near-term, but Rs 300-315 is a good price from one year plus horizon, he elaborated.
Below is the edited transcript of Dhirendra Tiwari’s interview with CNBC-TV18
Q: How are you feeling at the end of this earnings season? Have you marked down earnings expectations of a lot of companies in the last 10 days?
A: Earnings season has been the trend for past many quarters kind of mixed bag. Honestly speaking it has been very difficult to find out any trend in any industry. Most private sector banks did well, public sector banks are not doing so well. Part of pharmaceutical companies did well and some of them are not doing well.
Broadly speaking, earnings have been on the positive side for a few sectors like pharma, Fast Moving Consumer Goods (FMCG), to some extent automobiles. It has not been so good for some of the old economy sectors like cement and industrials.
So, those sectors have been at the receiving end as far as the earnings are concerned. I would say no specific trend emerged, but it was tad on the lower side with respect to expectations for broader section of the market.
Q: Has it caused you to mark down or mark up expectations for FY14? What would be a reasonable estimate for the next year?
A: For FY14 we are as of now looking at something like little over Rs 1,400 EPS estimate, which is about 16 percent odd growth. Chances of too much variation are very slim, because earnings are heavily dependent on a few sectors like oil and gas and IT, whereas there have been some disappointment in sectors like IT.
Some positive move in the earnings was seen from the oil and gas sector. I would not say there will be too much of variations as far as the earnings are concerned, but concentration or shift of earnings will take place in FY14. Sectors which would contribute little more in FY14 could be metals, autos and oil and gas as compared to IT or FMCG sectors, which contributed little more in FY13.
Q: Between these three capital goods stocks which one would you have conviction to buy now - Crompton Greaves, Thermax or Voltas?
A: We have a buy on Crompton Greaves, so conviction will be on that as a house. We have neutral rating on the other two. We believe Crompton Greaves can be one of the big beneficiaries of any upturn in the economy. The company is also in the process of doing some sort of restructuring, which is likely to play out in FY14.
Our view is that if one looks at the price and earnings expectation for FY14 and what can be the risk to that earnings expectation Crompton Greaves fits bill. So I would assume that our view is that Crompton Greaves of these three midcap engineering companies.
Q: What did you make of Coal India's results? Is it a stock in your buy list?
A: Coal India is a pretty strong buy for us. For some of the likely offers from government it is an excellent play on the production growth. Coal India results were pretty fine. The earnings growth was quite strong. The only worry for Coal India is that the production growth is still muted. Having said that, dispatches were pretty strong, up nearly 6 percent in this quarter.
There are three basic catalysts for Coal India. One is production growth, second is dispatches growth and third is price realisations. There is a positive development as far as dispatches and price realisations are concerned, Production is in control of Coal India and they will really have to work on that. We find that Rs 300-315 is a good price from one year plus horizon. In the near-term the stock will be impacted by external factors, but definitely it is one of our preferred pick in the utilities and infrastructure sector.
Q: What is your top pick from the pharmaceuticals space? Many stocks have been through fairly sharp corrections through all of last week.
A: They were preceded by very strong rally as well. YTD pharma sector has done pretty well. We have been recommending Lupin for past six months. It has been doing pretty well earnings-wise; stock performance wise and its rating have also been on the higher side. It remains so.
We will still have some 15 percent odd upside in stock after correction. Dr Reddys and Lupin are two stocks that we have been positive on since last about a year or so. They have done well, but in the context of the overall earnings profile and likely upside to earnings in FY14, they will remain our preferred pick within the pharmaceutical space.
Q: How would you approach energy now and what is your top pick from that entire basket?
A: Oil and gas sector has been one of our preferred segments to play in. One of the biggest reforms that have happened in India in last few years is diesel price increase. We have been positive on companies like Bharat Petroleum Corporation (BPCL), Oil and Natural Gas Corporation (ONGC), Oil India.
One can look at them from the perspective that under-recoveries will go down; oil price is also cooling off a bit, which will be significantly positive as far as earnings for these companies are concerned. One can also look selectively on utilities. Some companies which have been under pressure because of under-execution may see some improvement in execution - that will be very positive for National Thermal Power Corporation (NTPC).