In an interview to CNBC-TV18, G Chokkalingam, Founder & MD of Equinomics Research & Advisory shared his reading and outlook on the market.
Below is the verbatim transcript of G Chokkalingam's interview to Prashant Nair and Ekta Batra on CNBC-TV18.
Prashant: Coromandel International is one name that you like.
A: I do expect the market to be very weak as and when core sector number comes, index of industrial production (IIP) number comes. Finally Q3 number comes in the middle of January. Therefore, till the time I would suggest to spread the purchase.
On Coromandel, the recent correction is a good entry point. We saw kharif crop has moved up, now the rabi crop also has moved up despite the demonetisation, it is up by nearly 5 percent which is positive for a fertiliser company like Coromandel and Q2 has come out with a very decent result, profit after tax (PAT) is up by 26 percent, it is available at an attractive valuation of around less than 15 P/E. On one year forward earning if I apply for 15 P/E, stock is worth Rs 315. Lastly, even we have done some enquiries with a lot of dealers, which sell fertilisers, the impact is not huge because already the crops are sown. So at any cost to farmers cannot allow to get burnt, so therefore the business will not be affected very badly by the demonetisation.
Prashant: Can we say with some amount of confidence in a conclusive way that things are okay and they are not badly affected? But we would only know when these companies report in December?
A: Certainly, the December number will be bad. For most companies in relative terms, the impact will be the least for these kind of fertiliser companies and from the peak, it has corrected more than 12-13 percent. Therefore, I suggest that investor can buy at least in two-three phases till mid-January. Not only Coromandel, any other stock because I do believe when actual number on account of corporate earning come to the market, there will be some weakness in the market. So market even can fall 2-3 percent. Those are the opportunities, one should utilise and buy all the stocks starting from today in two-three phases.
Ekta: The other one you are looking at is Savita Oil Technologies. I notice that you have a target price of around Rs 780, this stock is already at around Rs 745 then it is up around 30 percent year-to-date (YTD). Is the big run on the stock over already or can someone buy from a two-year perspective and what is the story behind it?
A: The short-term target itself is Rs 850. It can go much beyond that. First -- it is coming from a very good management, very shareholder friendly, strong balance sheet, net debt is Rs 13 crore. Third -- it is engaged in making lubricants and transmforming oil, the base oil, the derivative of crude oil is major import. The stability in the oil price around USD 45-50 is a big positive.
In two years, oil prices are down more than 50 percent, which is again positive and it also got nearly 55 megawatt of wind power that started helping the company in a big way. As I mentioned, the management is good, it is known for returning more than 50 percnt of the PBIT either to shareholders or to the government in terms of tax and dividend that is a good indicator of quality of management. So considering all this, I would give a conservative target price of Rs 850 but in two years it can go beyond Rs 1,000 levels.
Prashant: Any other stocks where you have some amount of absolute confidence of price performance in the near-term to medium-term?
A: Certainly, JB Chemicals -- I also hold the stock along with Equinomics. It went to Rs 400, corrected back to Rs 345-347 level. The result is very good, operating profit is up 22 percent. Still they continue to have a cash of more than Rs 300 crore and also very interestingly, recently they have consolidated their stake in the subsidiary in Africa and valuation wise there are many small mid-sized pharma companies trading at five times sales, this company is still trading around two times sales and also in terms of P/E, it is only around 13 P/E on one year forward earnings.
Another stock is Tata Sponge. The company has got cash which is 60 percent of the marketcap and we have seen in the last few weeks across the world, the metal prices are rising that should also help Tata Sponge and Tata Sponge unfortunately was affected by both issues related to Tata Group as well as the demonetisation. Therefore, I believe that there is a good opportunity to accumulate Tata Sponge.
Prashant: Anything in the market which has slipped quite a bit because of demonetisation where you think the impact is not that much, Coromandel is one but anything else there?
A: There are many. In fact, one can even look at MRF. It went to Rs 54,000, now it is around Rs 48,000 and in fact in the last few weeks, we have seen that the promoters are also buying. They have been buying for last 20 years because their stake is very low. The Chinese tyres are dumped here, in fact they are accounting for more than three-fourth of the total tyres imported in India. So I soon expect the government initiative on imposing anti-dumping duty on import of tyre from China. As and when that happens, there will be a huge trigger and being a leader, it still trades around 12 P/E which is quite surprising. We have seen very small auto component stocks like Pricol, JaiBharat which I used to recommend in the past, they have become 20-25 P/E. Therefore, these kind of stocks -- I would still suggest that don’t buy on days like these but whenever they slip down, use that opportunity to buy the stock.
Ekta: Just a quick question on the NBFC bounce back that we are seeing -- do you have any credence in that, do you think that things will settle in the next one-two quarters for NBFCs, good time to buy valuations will get back to the heightened levels that we saw maybe in October?
A: No, I have my own fear. You can broadly classify into four categories. First three categories would have a problem, one housing finance. I firmly believe that real estate would crash anywhere from 20-30 percent in the next one-two years. So even if people expect 5 percent fall in the housing prices, they would better wait for buying the housing. So therefore the housing finance company would continue to have a problem.
Secondly, we have a gold loan microfinance, there the cash transaction is huge. The poor performaers in this current quarter will be larger enough to impact the whole year performance. Therefore, I would avoid. Third is the NBFCs which are focused on truck lending, lending against the trucks that to particularly the owner-driven trucks where we believe that there has been a lot of prices in the city across various cities on the roads and they are having a repayment problems. So these are the tree segments I feel they will have more pain left in the next two months. Therefore, I would avoid buying these three types of NBFCs for time being.