Dec 31, 2012, 12.18 PM | Source: CNBC-TV18
In an interview to CNBC-TV18, Nitin Raheja of Rada Advisors says there is a clear trend of economic recovery and improving sentiments. "I think the worst is behind us."
Nitin Raheja (more)
CIO, Rada Advisors | Capital Expertise: Equity - Fundamental
In an interview to CNBC-TV18, Nitin Raheja of Rada Advisors says there is a clear trend of economic recovery and improving sentiments. "I think the worst is behind us. People are in much positive mood then they were a couple of quarters ago. Many people are expecting an earnings growth of 10-15 percent. All these factors indicate that we have almost crossed the bottom and things can improve from hereon," he elaborates.
According to him, the market may give 10-15 percent return in 2013, but stocks will give more returns.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Will we see more economic uptick in the four quarters of 2013 and therefore have the markets just factored that in or is there more for the markets in the first quarter?
A: Now, there is a clear trend of economic recovery and improving sentiments. I think the worst is behind us. People are in much positive mood then they were a couple of quarters ago. Many people are expecting an earnings growth of 10-15 percent. All these factors indicate that we have almost crossed the bottom and things can improve from hereon. The market saw a very sharp run up in last 12 month where it clocked a rally of 28-30 percent. On back of this, much expectations is being built up into the market. Our focus is to identify stocks and focusing on bottom-up stock picking. The market may give 10-15 percent return, but stocks will give more returns.
Q: At which levels do you see the Nifty? Many technical and fundamental experts have a bullish comment on it they feel we could see 6000 on the Nifty in the January series. Would you subscribe to that view?
A: I am not an expert to comment on the movement of the Nifty. If we check the historic trend then we can see that the first two weeks of January have been good for the market. Given the trend I won’t be surprised because 6000 is just about 2 percent from present level.
Q: What would you buy? Even at the index level there isn’t that much of a rally, there are stocks for the picking. Some opinioned that PSU banks have been beaten down too much and they should be on their way up, would you buy any?
A: The trend of interest rates is downwards. The question is whether it happens in three months or six months PSU banks can be selected because considering that even despite the rallies that we saw in many PSU banks stocks off-late, clearly it shows that valuations are cheap compared to the private sector banks. ING Vysya Bank in private sector space is our pick because the valuation is not rich and the balance sheet and business trend is improving which will drive growth.
Q: One of your picks is Wockhardt Pharma, it was Rs 280 on January 1st 2012 and now at around Rs 1560-1570. You are still bullish on it?
A: People who invested in Wockhardt at Rs 280 really took higher risk nad they were rewarded commensurately. At this level if you see its earnings they have done in half year and if you were to extrapolate that for the full year annualized it will be anywhere between Rs 120-130 EPS. At this valuation it trades at about 12 times earnings.
For a company of this size and scale if you compare it with its peer groups like Lupin , Glenmark Pharma, Dr. Reddys Laboratories, Ranbaxy , they are trading between 18-20 times. So we see no reason why they should trade at a discount considering that turnaround has happened, considering that this is one of the few cases of a management who has successfully delivered and turned around the company, debt equity is down, the next cash to debt is down to one and round abouts and growing at 30-35 percent with EBITDA margin which is around top three in the industry. My price target is around Rs 2000 for Wockhardt.
Q: You have picked up Credit Analysis & Research ( CARE ) Ratings with a target of Rs 1200, what is the rationale behind that call?
A: CARE is the second largest rating agency. It has strong domestic parents in the form of IDBI, State Bank of India (SBI). After looking at the valuations and size we feel it will trade between CRISIL and ICRA. If you look at the margins that the company has and the growth it has seen and also we historically looked at how these companies have grown in an economic up cycle.
If one takes an extended view and believe that the economic cycle will revive and will take off in the next one-two years then one can look at this company. Cash contributes to Rs 330-340 core of the total balance sheet of Rs 360 crore investments. So the business is cash generating, there are only three players which are listed and we think over a period of next one year there is an upside for this company.
Q: CEBBCO the commercial vehicles bodybuilding company, why do you like it, give us a brief on the company as well, largely serves the Tata Group?
A: Tata’s right now accounts for about 27-28 percent. It has diversified its clientele. Due to regulatory changes especially excise duty changes there is an incentive that has been put in place for buying fully-built truck vehicles. Now, what that does is from a truck operator’s perspective if you look at it, today if you buy the chassis, he gets a loan only on the chassis and he needs to spend his own money on building the fully-built vehicle (FBV). When he buys a fully built vehicle he gets financed on the entire amount. Second he gets it operational from day one and it is earning money for him from day one. So there is a big incentive for them and there is a big trend in the next couple of years for FBV rather than just chassis.
Second, the company has started focusing on the replacement market and that’s a huge market, many times the size of the current market as such. There they enjoy far better margins and virtually zero working capital. So we are seeing earnings growth take place, capacity has been a constrain, fresh capacity is going on stream now, there is further capacity that they are adding going ahead. We see earnings growth of almost 25-30 percent valuations which are under 10 times, margins improving. So we see all the triggers at least for the next two years in place for this business.