In an interview to CNBC-TV18, Mayuresh Joshi of Angel Broking shared his readings and outlook on specific stocks and sectors.
Below is the verbatim transcript of Mayuresh Joshi’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy.
Sonia: How do you approach the oil related plays which are getting impacted on the downside like the paint companies, tyre companies or aviation stocks. Any of these pockets that you would look to buy on a dip?
A: The spike that we have probably seen in crude prices and the general expectations of the crude now staying in the range between USD 50-60 per barrel, the input cost inflation will definitely play out on a whole host of these commodity players which use crude or crude oil derivatives as their input material. So, largely I think paint companies, tyre companies will get affected if crude spikes up further and stay within this range.
So, it is a double whammy of sorts with a short-term distortion because of demonetisation and the volume de-growth that one might really witness. The input cost inflation will also take sheen off in terms of their EBITDA performance. I think one really was expecting operating leverage to play through. However, with volume increasing and though it would have got offset with rise in input cost prices I think bottom-line would have increased, but with volume de-growth happening in quarter three specifically, I think the earnings estimates have got trimmed down. So wait for declines. On to paint stocks and tyre stocks, I am not buying at these levels.
Sonia: Wanted your view on the auto stocks? We have seen very poor sales come in from the likes of TVS Motor, Hero Motocorp even Tata Motors' commercial vehicle (CV) space but this is something I think the market was expecting because of demonetisation. At what point would you buy any of these stocks and which ones would you be looking at?
A: As you again rightly pointed out specifically the two-wheelers space the effect of demonetisation was largely expected to play out because of the price points at which these bikes or scooters are offered and specifically the rural market witnessing slowdown, you are going to see some impact happening in Q3. The numbers are testimony to that fact.
Second, as you pointed out the CV side of Tata Motors, even that side of the business is going to probably see some brunt be being borne because of what we have we are probably witnessing in the markets at the current juncture. So, you have to pick and chose I think within the two-wheelers space. I think Q3 results are going to be extremely important by the data points that we are gathering at this point of time in terms of volumes. We are definitely going to see volumes slow down happening and it is only about how the recovery happens post January. One really expects the cash normalisation to happen in the next few weeks and I think the rural economy probably getting their fair share of cash.
However, I think the translation will probably happen on the consumption side of trade rather than on the two-wheeler side which can get delayed by at least two quarters. So, my own sense is that the underperformance might continue, but stocks like Hero Motocorp can definitely be kept on the radar but the underperformance will continue larger because of these factors. So, one must wait for significant declines on to these stocks before start buying it.
Latha: Is there anything at all that you will buy? You said you will not buy the crude related stocks that have fallen. Anything else that looks attractive now?
A: On the power side a very interesting theme, for example Power Grid, though it has moved up, any decline can be taken as a buying opportunity. Capitalisation to capex ratio expected to be more than 1. We are probably looking at Rs 30,000 crore in terms of capitalisation; Rs 22,550 crore in terms of core capex, the regulated return on equities (ROEs) of 15.50 percent works on the capitalised assets for Power Grid. So, even on a price to book multiple not too expensive in terms of earnings growth that you foresee.
Power transformers as a space is something that I continue to like and within the road operators the engineering, procurement, construction (EPC) players like KNR Constructions is something that I will be optimistic about 10-15 percent an investable corpus can go in this company. Debt-equity ratio of 0.15, working capital days are on 40 days, ROEs in excess of 22 percent, strong balance sheet and again execution record has been exceptional so far, so, pockets to choose from but EPC, road players specifically power players as I mentioned look interesting in market like this as well.