SBI, Suzlon good bets for long term investors: PN Vijay

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Despite concerns of growing non-performing loans, portfolio manager PN Vijay tells CNBC-TV18 that he is positive on SBI with a long term view. "I think SBI has managed the downturn well," he said.

Going forward, as the economy slowly responds to better liquidity and probably falling interest rates, Vijay expects SBI's assets to fall in place.

He also bets on Suzlon with a three year time frame. "is good for long term high risk investors because the business model is very good and the balance sheet is improving," he explained.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: How would you approach State Bank of India after the results yesterday?

A: SBI could be a long term buy; one should not expect any fire works in the short term. I think SBI has managed the downturn well. Being the countries largest bank, and in a way a lender of last resort, SBI has gone into tough infrastructure situations and even exposures to telecom and power have been quite high. Given this direct fall back on the growth slowdown that we saw in the last calendar year, it was not surprising that the provisioning for non-performing loans (NPLs) in SBI was higher than other banks. It was the strong net interest margins that surprised me. SBI reported a close to 4% NIM which is unheard of for that bank. So the strategy change after the new chairman took over of going for more profits at the cost of growth seems to be paying off.

With all this, the net profit has improved slightly above analyst's expectations. My sense is that as the economy slowly responds to better liquidity and probably falling interest rates, the restructured assets would fall in place at least in some of the sectors. This means that SBI's NPA position going forward may be a bit more relaxed, especially if the government comes in with its capital infusion before March 31st, which would form a base for more lending.

They have also managed to reduce their high cost deposits very significantly, which is another reason why the net interest margins are so robust. So given all these complex matrices, I would say that SBI is a long term buy despite the present level of trepidation about the stock and their NPA levels.

Q: Crompton Greaves has quietly come back to Rs 155-156 levels. Do you think the worst is over there?

A: The worst may probably be over because of the strong actions been taken by the management, but I am not brave enough to buy that stock. The environment for Crompton is still quite complex because they are in businesses where the costs are high and the margins are very low.

I would prefer Havells, which to my mind has a much stronger profit growth potential with the Sylvania turnaround. So yes the management is working around for Crompton, the Thapars are a good group, they have got a very vibrant CEO but all that doesn't mean a buy on the stock. I would at best hold and exit in this rally.

Q: What do you do with Suzlon now?

A: Things are improving with Suzlon. It's got beaten out of shape in the last three years and it is perhaps one of the worst performing energy stocks. The problem with Suzlon is that the debt continues to be high and the business model continues to be very risky since it's very global. So Suzlon may be good for high risk investors or traders.

You may have palpations, but if you looked at a three year time frame, Suzlon is good for long term high risk investors because the business model is very good and the balance sheet is improving.

Q: What do you do with a name like Pantaloon now? Current numbers are pretty poor, but there's a hope that post the UP elections and the Budget maybe FDI retail gets revisited. Is it worth the punt?

A: I think so. If there is one stock in India which is worth a punt, that's Pantaloon because they can get it hugely right. The sense in Delhi is that if the Congress does reasonably well in the UP elections, the first thing of the block would be multi brand retail. They would persuade BJP on that and give some concession somewhere else to them. If that happens, Pantaloon will just go through the roof.

If it doesn't come through, we already know the downsides for Pantaloons is around Rs 150 or Rs 160 levels because it's got a strong street presence. So the risk reward for anybody who is playing for a game changer is very high in Pantaloons. So it could be a buy on dips for investors.

Q: Would you buy SAIL at all? Yesterday the EBITDA margins did not look to bad for the company though it's had a good move up.

A: For SAIL, one would have to wait for more confirmation. In SBI, one expected the news to be bad and the news was quite bad. The coal prices may weaken because of questions about the pace of China's recovery and the easing supplies due to environment clearance is getting a bit easier. So there could be some less pressure on coal.

Q: How would you approach TISCO now?

A: Between SAIL and TISCO, TISCO is much better because it's got a lower cost of production. It's much better backward integrated as we know and the expansions are going on. Corus is getting leaner and meaner and hungrier, so like JLR gives some traction to Tata Motors, at some point we may get Corus.

The institutional brokerages are thinking a bit ahead and saying that if the commodities are going to come back in this bull market, TISCO must be one of the obvious beneficiaries. So a bit more optimistic on Tata Steel as compared to SAIL, though I feel that big gains this year are going to be made in tracking those companies which are going to benefit from lower interest rates.