 Outlook remains +ve for power sector: Motilal OswalPublished on Thu, Jul 16, 2009 at 10:39 | Source : CNBC-TV18 Updated at Fri, Jul 17, 2009 at 11:52 1682 Investors following GSPL India. Share this News with them.
Rajat Rajgarhia, Director-Research, Motilal Oswal Financial Securities believes that the outlook for the power sector remains positive. "We have started seeing announcements of big projects now happening not just in the public sector unit (PSU) sector but also in the private space." However, going to individual stocks, valuations in the sector are at the top end of the range, he said. Here is a verbatim transcript of the exclusive interview with Rajat Rajgarhia on CNBC-TV18. Also watch the accompanying video. Q: Any thoughts on how to approach this power sector after yesterday's spectacular rally? A: I think the power sector has two things going right now. First, we have started seeing announcements of big projects now happening not just in the public sector unit (PSU) sector but also in the private space. In another two to three years, some of these large projects will get commissioned. We already saw one of the projects by GSPL which earned very impressive earnings last year. So I think the overall outlook remains very positive and given the surge in the equity markets some of these companies would be able to raise equity from the markets which will help them not just to achieve financial closure but also allow them to invest in their future projects. Overall, macro-wise this looks like a pretty positive sector to be in. Just that when you go to individual stocks, a lot of the valuations are at the top end of their range. Q: Any early thoughts on Sterlite 's american depositary shares (ADS) and do you think that is indeed for their power venture or for Esarco? A: I think the money debt that they have raised can be used for either of the purposes. They already have some cash in the balance sheet and they have multiple plans right from Esarco to investment in the power business and also there are couples of call options that they have on both Balco and Hindustan Zinc. So, given the kind of buoyancy that we are seeing in the market, it is good to raise some capital right now. This company is always on a growth phase both organically and inorganically. Thus, it will help them to be well prepared once they see opportunities coming in the market. Q: What would you do with Mahindra Holidays at Rs 330. How did you read the IPO and the business? A: The business is definitely very good. They have been managing this concept very well for quite sometime and while last year was a tough year, more in the second half, I think they have expanded the total number of resorts by a meaningful number over the last few years. Just that at the current price you look at the current year profit which is FY10 and FY11 you feel that the stock may be some consolidation before the next move. Company-wise, I think, they have been doing very well. While we do not have a direct average on Mahindra Holidays since we cover M&M this becomes a part of that coverage. We have been quite positive on M&M as a group. The company will do fairly well. The valuations will remain expensive because it is one of its kinds in this business. The entry price needs to the better for one to make a positive return. Q: What is your call on the market now after looking at the first few earnings which have come in? Do you think through this earnings season, the market will be strong or are you expecting any disappointments? A: On earnings, we will see more positive surprises than the negative ones. Already, given the last two-three quarters of experience, the estimates have been toned down at the beginning of the quarter and whatever early numbers have come right from Infosys to Axis Bank to HDFC Bank or even some of the smaller names like Prism Cement, J&K, each one of the numbers have been better than estimates at the profit level. I think this trend will continue throughout the season. When we talk after the end of the quarterly numbers, we will be talking more about upgrades than downgrades. From a market point of view, we almost have a 1,500 point movement in the Sensex now on a weekly or fortnightly basis. So it seems right now we probably are in a trading range of 3,900 to 4,300-4,400 on the Nifty, which is a fairly large range. But we have been testing these ranges very often now in a short period of time. This is a time when earnings will definitely look for some kind of a recovery. We just need to be more careful about the valuations in individual sectors and stocks. So, it is becoming more of a bottom of stock picking rather than a top down approach for the markets. Q: What do you make of the market reaction to Sterlite-is it fear of dilution or fear of what the money is being used for? A: I would say it is more because of dilution. Some existing investors maybe selling in order to create some cash. But, given the uptrend in the metal prices and given the significant expansion that we are seeing in each of the businesses, we are very positive on the stock. This is one company which has demonstrated a lot of value creation through both organic and inorganic route in each of their businesses. We think this trend will continue, so we are not worried about this. We would advice our clients and investors to keep buying the stock in declines.
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