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Nov 25, 2011, 12.34 PM IST
In an interview to CNBC-TV18, Sanjay Singh of Standard Chartered gives his best strategy to trade in retail space. His top picks are HUL and Britannia. Singh explains that HUL has been able to handle raw material pressures well; however, rupee depreciation is likely a concern for the near-term.
In an interview to CNBC-TV18, Sanjay Singh of Standard Chartered gives his best strategy to trade in retail space. His top picks are HUL and Britannia . Singh explains that HUL has been able to handle raw material pressures well; however, rupee depreciation is likely a concern for the near-term.
He further warns that over-ownership in ITC may restrict outperformance.
Below is an edited transcript of Sanjay Singh's interview to CNBC-TV18. Also watch the accompanying video.
Q: On HUL, what you have made of the price increases and whether that will mitigate any of the negative effects of the depreciating rupee?
A: The prices are part of the normal business course and HUL has been able to manage margins pretty well in the last maybe quarter or so. The depreciating rupee is a concerned not for Lever, but for the whole industry per se. However, you have various tools in the pricing or volume to manage it. Hence, we still maintain HUL is a top pick for us. But being the best performing stock in this year there is time for some consolidation at these levels. So, near-term maybe there is no spike, but I am not very concerned about margins given the depreciating rupee. There are enough levers to manage it. The bigger concern would be if volumes holdup. Hence, rather than for margins I am more concerned about volumes, not for Lever, but for the entire industry.
Q: Do you think Lever will continue to do better than ITC? If you had to choose between the two, would you still go for Lever?
A: It has been a call for the last 6 months and I donít see any reason to change the call at this point of time. Although, I would say the divergence has been very sharp and severe but till the budget, I would prefer Lever over ITC.
ITC is a completely over-owned stock by the market and given the fears of fiscal deficits and given the fears of taxation, despite probably good set of numbers, ITC will remain subdued. Hence while the divergence has been great, there is no reason for the divergence to stop in the near-term.
Q: What about something like a Jubilant Foodworks , where last quarter results did not go down particularly well? There have been concerns on valuations; would you still be a buyer in that name?
A: Yes, in fact we have just initiated on Jubilant Foodworks with a buy in a very difficult environment. The stock has corrected, almost 25% from its peak. Valuations are high, at around 25 times 1 year forward. Companies globally have traded at very high valuations in the growth phase. So, there are companies in US which at are trading at 35 times plus. Hence, in India, we just look at the PE multiple and say its expensive, without looking probably at the growth in the financial metrics.
It is a good opportunity for people with a longer term view to accumulate semi-discretionary or discretionary stocks, which have corrected quite well. So I am particularly fine with Jubilant here. Maybe there will be little bit volatility with the market, there will be the little high beta stocks per se compared to FMCG, but I think it is a good time to accumulate this discretionary names.
Q: Any thoughts on Titan ? What kind of price do you see that stock settling at or getting into?
A: Titan is quite cheaper compared to a Jubilant, which still actually is higher up. The concerns have been pretty much on how will discretionary hold up and itís a valid concern, but the way we see it is how much it has priced in valuation. For example, I would say Titan at these levels prices in a pretty much bad environment. Hence, for various reasons itís been down in the last 1 month or so, in the near-term, I donít see any issues. The last quarter was pretty good and there is no concern on sales growth.
However, donít expect a 40-50% growth quarter on quarter, numbers are not factoring that. Therefore, a 20% plus growth in jewellery is part of the course and that is pretty good.
Q: What are your top three picks in the consumer related space?
A: It remains the same. So, HUL in the, large cap consumerís space is our top pick, Britannia in the midcap consumer space and Titan as an alpha pick for us. So these 3 are our top picks. We will also look increasingly at discretionary names like Asian Paints , Jubilant, which has corrected a bit and see whether from a longer term perspective it makes sense or not.
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