Below is an edited transcript of the interview on CNBC-TV18.
Q: What is your view on Crompton Greaves? After yesterday’s cut in share price, how would you approach the stock today?
A: I think after remaining very negative for a long time, I am surprised on this number. I have changed my view and I am turning positive on Crompton. I think maybe Rs 105-102-107 would be a level, where one should be buying into Crompton.
What has impressed me after a very long-term, as far as the numbers goes, is the Indian business. If one sees that power margins have improved and looks at the order backlog and the spate of new orders, which has come in, I think one can state confidently as far as the Indian operations goes. Possibly better times are ahead for Crompton.
As the Belgium operations goes due to restructuring, we have had one more quarter with losses. I think these losses could continue for one or two more quarters.
But, I think we honestly do not know right what Europe is going to be two years down the line. If one looks at the Indian operations, restructuring is happening, cost saving measures are erupted, the order inflows, the backlog, margin improvement as far as power goes. If you look at the businesses, none of the businesses have shown a contraction. So, all said and done, despite all the negatives and possibly reports coming out stating that Crompton remains a sell. I think, I am turning my view. Rs 100-105 according to me would be a level where people should be buying into the stock, from a little longer-term angle.
Q: How would you approach some of these tyre names? You track them closely, Apollo Tyres slipped post numbers because of fund raising, Ceat was down quite a bit, would you buy on dips?
A: I would not change my view as far as Apollo Tyres goes. Whilst stating that the dilution which is going to happen over the next 2-3 weeks, the company is looking at a QIP. I understand that the QIP is more or less finalised. Promoters are going to take warrants which should not be at a price lower than the QIP price. But all said and done, people have started looking at this, little negatively stating that the RoE will come down. And there will be equity expansion. Earnings will not look very good in terms of total equity. But, I don’t agree with that view. I personally feel Apollo Tyres is on a great wicket.
I think Indian investors have still not become matured, in terms that when good companies look out for acquisitions and expansions, ultimately returns do come in. It takes a longer period. I remember how we looked at Tata Motors negatively, when it looked at JLR. We also looked negatively at Sun Pharma when the Taro thing was happening. So, all said and done Apollo Tyres has made acquisitions in the past. I think it’s the only company in the tyre sector which I would call a global company.
I am very positive on Apollo Tyres. Although the RoE is going to come down, equity is going to expand and the stock may not do many things over the next 1-2-3 quarters now. I am not surprised that the analysts brought down the estimate over the 24 hours. Stating that the equity expansion is going to possibly not make earnings look impressive. It maybe that over the next one year the stock may not go over Rs 100-110. But 3-4 years down the line, Apollo Tyres will remain single largest tyre company. Possibly the only global tyre company as far as India is concerned.
Q: What are your thoughts on State Bank of India (SBI) going into Friday’s numbers? Do you expect it to track the weakness of the other PSUs or to spring a positive surprise?
A: There could be a marginal positive surprise looking at the language, which the management has been stating over the last one month. At the end of it all, I remain skeptical as far as the quality of assets goes for not only SBI but most of the large PSU banks. Not very comforting the way provisions have been made honestly. As far as positive surprise, yes to some extent. But, if one looks back at SBI, I think over last three-four-five-six quarters, virtually every possible estimate as far as the numbers go has gone wrong. So, I think how much to believe the numbers would be the bigger question. As of now, I think big question mark still remains over the quality of assets for most of the PSU banks including SBI.
Q: How much more would you give Cipla beyond this Rs 400 mark after looking at the numbers?
A: I think numbers looked pretty good. I think revenue is up 24 percent. But, if one looks at the results closely, 24 percent growth in revenues was largely aided by 33 percent growth in exports, which in turn was aided by the USD 35 billion Lexapro sales. I think if you take this one off, the EBITDA of 22 percent was largely something which the market was expecting. I would see a large part of the numbers, which otherwise looks very good, are there in the price. So, I will be surprised as the stock moves up more than 4-5-6 percent from here. I think the market will look at the numbers positively. But, there could be an uptick as far as the stock price goes today. I think at Rs 390-400-410 all the positives, for numbers are in the price.