Sensex FY07 EPS seen at Rs 700: Raamdeo Agrawal

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Sensex FY07 EPS seen at Rs 700: Raamdeo Agrawal

Raamdeo Agrawal of Motilal Oswal Securities says that corporate profit growth is on track and the Q2 results are better than expected. He adds that the lack of infrastructure will give pricing power to some sectors.

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Q: Do you track DCB ?

A: Yes, I met the management just before the public issue. The new team, which has been put up in this bank is trying to build on to the retail model the way the newer banks have built it like HDFC, Centurion and Yes Bank.

This team is also trying hard, they have an infrastructure in place and they have a client base already on ground. They have a very capable team and it's a long shot although right now the business conditions are very good. I'm sure they should be successful, that's the bet right now.

Q: What do you do with the two-wheeler space?

A: It's a very unique business, in the sense, that the ticket size of every bike is more like a consumer product with Rs 35,000-40,000 and if one talks about EMI, then onw will be talking about Rs 1,200-1,400 a month. So it has really become affordable for the masses in India and it is the only personal transport for the masses.

The good thing is that there are only three players and the top two have 80-85% market share. The funny part is that Bajaj has become very aggressive and very successful and with their monopoly profits out of three-wheelers, they are trying to buy the market share in the motorcycle segment. But the kind of aggression, the kind of discounting in terms of zero interest rate, which both Hero Honda as well as Bajaj Auto have done in this quarter has taken the margin down. But volumes are still intact.

My sense is that for the time being, they need not do further discounting of the prices. The volume growth will be massive going forward, because they have penetrated deeper into the demographics. So from here onwards, the profit growth will also come through very easily.

Q: You have been a fan of Bharti Airtel for a long time, do you continue to hold that and don't see a let up in the business momentum there?

A: In fact, I see the business momentum getting more accelerated into the coming quarters and the net margin expanding. So I think it is a dream growth company and I think the management has done a brilliant job. It has joined that one lakh crore club and it's all praise for Sunil Mittal's leadership.

My sense is that the stock is trading at about 17-18 times '08, for a growth of about 40%. At less than half time growth, there are very few companies of this size, which are available at this kind of valuation.

Q: This Nov-Dec-Jan is good patch for our markets, if one goes by history, do you think this time around even from these levels one could see an upside and go to 14K plus by the time the year is out?

A: I don't know the time part of it, but clearly markets are headed higher from here. It all depends on the pace of money flow. One should not forget that the mother of all the markets; the US market is doing so well now at least for the last one month or so. They are also at an all time high. So a lot of people are not diversifying into emerging markets at this juncture and they are trying to make the best out there. 

Therefore, it is quite possible that the money flow in Q4, as we saw last year might not materialise per se, because if things have not come in the first nine months, then to expect flows at much higher levels in Q4 may not be rational. My sense is that this is year will not be as great in terms of money flows from FIIs and one has to look forward to next year onwards.