Angel Broking bullish on Ceat, McLeod Russel

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Angel Broking bullish on Ceat, McLeod Russel

Rajen Shah, Chief Investment Officer at Angel Broking is bullish on Ceat and McLeod Russel post impressive Q3 earnings performance. However, Shah is negative on Dish TV and NMDC subsequent to Q3 earnings coming in below expectations.

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Rajen Shah, Chief Investment Officer at Angel Broking is bullish on Ceat and McLeod Russel post impressive Q3 earnings performance.

However, Shah is negative on Dish TV and NMDC subsequent to Q3 earnings coming in below expectations.

Below is a verbatim transcript of the interview. Also watch the video.

On Dish TV

This company has been disappointing us for quite a while now. That was expected because of the intense competition in this space - the direct to home (DTH) space - almost there are about six-seven players in this industry. The battle is on and is showing in the company's performance. Even if you see quarter-on-quarter (QoQ) numbers, that is the way we normally look at DTH, and telecom companies - revenues are up just 8% and on that 8% kind of rise in revenues, the company has posted losses of Rs 76 crore vis-à-vis Rs 56 crore. So losses are up by almost Rs 20 crore.

A significant part of losses were on account of higher spend on branding and marketing to the tune of almost Rs 15-20 crore. So net, for the first nine months this company has posted almost about Rs 125 crore of loss and maybe for the next quarter, the losses could mount to about another Rs 50-70 crore. So for the full year losses would be anywhere between about Rs 200-225 crore. If you see the market cap, it is about Rs 5,000 crore.

Certainly, the long-term prospects are very bright, the industry is likely to grow up by 100% over the next three-four years and Dish TV is a significant player holding almost 35% of the market. But if you see the valuations, Rs 5,000 crore of market cap for a company which is going to report almost Rs 225 crore of loss doesn't sound well. So certainly the performance has not been upto the mark, the valuations are on a higher side. It is certainly a miss for the current year at least.

On McLeod Russel

Anything related with agri has done exceptionally well. That is what we have been speaking about for the past almost one-and-a-half-year - whether it is a company like Rallis India or a fertiliser company like Coromandel or even a tractor company like Escorts. Sugar companies have done well and tea was no exception.

In fact, this stock has been recommended almost three times on your channel at levels from Rs 100-150 to almost Rs 200. It has certainly lived upto our expectations. There has been almost 30% kind of hike in prices of tea, prices have moved up by 30% and realizations have improved almost by Rs 28 in case of McLeod Russel. That is precisely the reason why the profits have moved up from almost about Rs 50 crore to about Rs 140 crore. Globally almost about 100 million kilogram of tea shortage we are seeing and McLeod should do pretty well because the Ugandan acquisition is going to add about 50 million tonne to its existing about 80 million tonne. Plus it is hiking the capacity of its Vietnamese plant by about 0.5 million tonne.

So McLeod should do pretty well and in the interview which was given to your channel, Aditya Khaitan, Managing Director of McLeod Russel, sounded very optimistic. In fact, he spoke about 10% rise in tea prices, which is possible. If that happens, next year could be phenomenal and we could see McLeod posting almost about Rs 30 kind of earnings.

So I think Rs 30 kind of earnings, stock is at about Rs 250 with 8.5 kind of P/E multiple and you are getting a quality tea company and with agri prices likely to remain firm. I am not saying that the prices will go up. What I am saying is that these prices are going to remain firm for quite a while. McLeod could be considered at a little lower levels from the current levels.