 Will ITC dream run continue beyond FY10?Published on Tue, Nov 24, 2009 at 09:55 | Source : CNBC-TV18 Updated at Wed, Nov 25, 2009 at 09:36 183986 Investors following Reliance. Share this News with them.
The ITC stock reached an all-time high on Monday. However, analysts have expressed concerns that the company faces issues in the form of GST (that may be released in April 2010) and possible excise duty in Budget 2010. What is the outlook ahead for the stock? Sandeep Bhatia, ED and Head of Sales at Kotak Institutional Equities, spoke to CNBC-TV18 discussing his view. Bhatia also spoke about his reading of others stocks and the market in general. Below is a verbatim transcript of the interview. Also watch the video. Q: A quick word on Reliance and how you are looking at this LyondellBasell acquisition potentially, if it can be pulled off by Reliance? A: Right now this acquisition is still in the realm of 'a possibility'. We don't have any concrete details on the valuations. The market should focus on the valuation, which is the key parameter to focus on and anything between USD 10-12 billion would be an interesting acquisition. This is not 2006-2007 where asset prices were inflated. Businesses have come down in valuation terms and they have still not gone back up, especially at least in the West. So to some extent, this could be an opportune time to get it. In terms of operating synergies, our research department doesn't see any significant operating synergies coming through. So the real parameter to look at very closely would be the valuations. So, if we get it at reasonable valuation that would definitely add size to Reliance. That gives them international flexibility, which would be good for the business. Q: What about the other heavyweight, which is just not topping its fall? Bharti is headed to a three-year low now - closed at Rs 275 yesterday. Are you seeing that there is a contrarian opportunity to buy or do you think it is still not bottomed out? A: Kotak has been cautious on the telecom sector well ahead of most other people. We have to give telecom sector some time. We are going to go into a phase of extreme discontinuity coming through in terms of the market pecking orders. There are a couple of large entrants with big pockets, which are coming in. In addition to that we have entrenched players like Bharti. We would see continued market cap erosion in the telecom sector for sometime until we see consolidation coming through. Consolidation should basically start probably in the end of 2010 and from then on we can see how Bharti is emerging. So from a fundamental perspective we would advice caution on the telecom sector. Q: What about the third heavyweight that is not stopping its rise and that you track - ITC ? A: ITC is going through a good phase. We have seen significant increases in excise duties completely absorbed by the business. We have seen volume growth in the region of 7-8% in the first half of the current year. We are heading towards some amount of uncertainty on taxes again. Around the budget time, there would be a lot of focus on increasing the excise duties, which they did not have any last year. It was very fortunate for the business and to that extent, we could see some headwinds coming through for ITC in February, especially also because goods and services tax (GST) is going to come in. So the impact of excise duty and GST - if it comes in April 2010 - would be material for the stock. So right now, ITC is headed for good performance but come February we would see a focus back on excise duty issues. Q: Are you getting uncomfortable at this 5,000-5,100-mark or do you think momentum is still leaning towards up rather than down? A: In fact, if you recollect, I had said that I expect markets to go up through November-December on the back of continued inflows and the question was how much come. I have said that it is impossible to predict. What we have seen is around USD 15.5 billion of inflows in the current year from FIIs and even FDI inflows have been very strong this year - USD 17.5 billion. So clearly there is lot of flows coming through and this would continue for the next one to one-and-a-half month. We will have the typically year end rally, which would play out till maybe the first week of January. But clearly there are other issues that the market needs to focus on. Primarily, it is the fact that we have seen good industrial recovery come through in the second half. We expect 10% plus Index of Industrial Production (IIP) growth to come through for October-November-December. And very clearly, the focus will be back on raising interest rates, exiting out of the fiscal stimulus, raising excise duties for cars and two-wheelers. The entire impact of high inflation, high interest rates and high excise duties would play in the market in the February-March-April period. Continued on next page...
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