Edelweiss lists 4 stocks you should bet on post results
In an interview to CNBC-TV18 Nischal Maheshwari of Edelweiss Securities speaks about his preffered stocks from the auto and IT sector post June quarter earnings.
August 09, 2012 / 16:39 IST
In an interview to CNBC-TV18 Nischal Maheshwari of Edelweiss Securities speaks about his preffered stocks from the auto and IT sector post June quarter earnings.
From the auto space, he is betting on Mahindra & Mahindra and Bajaj Auto. "Mahindra & Mahindra’s UV segment has grown very, very strongly. The tractor and the farm equipment side of the business have been under pressure, but the valuation is supporting it," he explained. He expects Bajaj Auto to continue good performance because 45-50% of its sales come from exports.He likes Infosys and HCL Tech from the IT pack. He finds valuation of Infosys attractive at current levels and sees lots of the negatives already priced in. “At these prices one should start accumulating Infosys,” he added.Below is the edited transcript of Maheshwari’s interview with CNBC-TV18Q: IIP figures pretty dismal at contraction of minus 1.8%. How exactly have you read it and how would you extrapolate it onto the markets and the reaction that we have seen?A: The expectation was close to around minus 0.2% and it’s come at minus 1.8%. Capital goods continue to be very, very bad and there is nothing happening on the capex side. The growth in order books for most of the companies is very small and that all is reflecting into the capital goods growth. The only positive side remains to be that the consumer durable figure is pretty good.Q: Perhaps one key takeaway from the IIP number has been that this is also a washout quarter. If one was looking for a bottoming out, that bottoming out is not happening. We are still bottom or so it seems. How does this impacts your earnings forecast? At the moment do you think that with more and more people coming in with GDP downgrades we are going to be seeing more corporate earnings downgrades?A: Very interestingly this has been our theory. I have studied the last three downturns in the country where it was 91-92, then 2001-02 and again 2008-09 in all the three times you see that once the corporates come to a conclusion saying that the growth is now not going to there they stop chasing the top-line, they start focusing very, very strongly onto the bottom-line and that’s what we have seen in the current quarter also. The top-line has been around 15-16% growth, but the bottom-line has been pretty steady at around 14%. That is what really works. Quarter after quarter you are going to see people are cutting their employee costs, SG&A expenses. This time around depreciation has been one of the big savings because people have not invested in capex. So, we are not seeing a serious downgrade as far as earnings are concerned for FY13.Q: What is the key takeaway in that case from the earnings season so far? Let’s start with some of the high profile sectors, for instance automobiles. Do you have any buys in the space after you have seen the numbers? Tata Motors is still awaited today.A: Mahindra and Mahindra came out with numbers yesterday. Their numbers have been pretty good. The stock has been okay given that their UV segment has grown very, very strongly. Definitely the tractor and the farm equipment side of the business has been under pressure, but the valuation is supporting it. The stock is around 9-10 times. That’s a good stock to look at. On the two wheeler side, Bajaj Auto continues to do pretty well because around 45-50% of its sales is coming from exports. So, these are the two stocks which we like in the sector.Q: Just wanted to concentrate on Bharti. Were you or your analyst on the conference call? That’s when the stock actually fell off post the conference call and there were these EPS downgrades which have been quite significant today. What did you make of it and is it a good time to actually bottom fish?A: I was there on the conference call and what most of the people have misread or rather market is expecting that Bharti is still going to focus on the top-line. They are going to be focusing on more market share. What the management was trying to say that they are trying to figure out ways, basically not to destroy value, but continue to maintain their market share. They were saying that they are looking at couple of ways to reduce cost in-house so as to bolster the margins. That is what the impression the management gave, but given that this has been the 8th or 9th quarter where the margins have been under pressure, market was waiting for a push and the stock fell. Having said that, there are short-term concerns as far as Bharti is concerned, obviously the major being the regulatory outlook. But what people are not really looking at is the long-term cash flows for the company are pretty strong. According to our calculations, Bharti will be generating close to around USD 5-6 billion of cash in the next three years. That’s a pretty strong story.Q: What have you done with the IT company basket? Is there any kind of a defensive play here at all? They seem to be now behaving like cyclicals.A: We continue to like Infosys and HCL Tech. Infosys valuation-wise looks pretty good at these prices. A lot of the negatives are priced in as the management plays out its strategy. At these prices one should start accumulating Infosys. The second stock we like in the large cap is HCL Tech. They have been continuously surprising on the margins. Historically, HCL Tech has given guidance and not been able to achieve it. But for the last three-four quarters they have been able to not only achieve that, but better the margins and market is rewarding them for that. Another stock which we like is Satyam. Even after their merger with Tech Mahindra the stock is still cheap. It should be around 8 or 9 times. So one should look at it given the fact that together it’s going to be a formidable company of around USD 2.5 billion size. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
