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Last Updated : May 27, 2015 11:42 AM IST | Source: CNBC-TV18

'Modi govt more Dravid than Sehwag and I'm happy for that'

In an interview to CNBC-TV18, Niraj Dalal, founding partner, 3A Capital Advisors says a lot of Nifty companies reported poor Q4 earnings and therefore, the market is currently factoring in a very pessimistic scenario for a couple of those stocks.


In an interview to CNBC-TV18, Niraj Dalal, founding partner, 3A Capital Advisors says a lot of Nifty companies reported poor Q4 earnings and therefore, the market is currently factoring in a very pessimistic scenario for a couple of those stocks.


According to him, people are either neutral or unhappy with the government as nothing much is happening on the ground.

“You can either be Virender Sehwag and hit six of the first ball and get out or you can be Rahul Dravid and play through the innings and do things steadily. However, the government is more like Rahul Dravid than Virendra Sehwag and I am happy for that,” he added.

Below is verbatim transcript of the interview:


Q: What is your call on Dish TV after the numbers they posted yesterday and the kind of surge that we saw in the stock?

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A: Great numbers. This is something that I have been very vocal about in the past year or so. There were two or three key things in the numbers. The sales went up from Rs 713 crore to about Rs 750 crore and so, it is an increase of  Rs 40 crore in sales quarter-on-quarter (QoQ).


The profit after tax (PAT) went from minus Rs 4 crore to about Rs 35 crore. So you are seeing operating leverage there. This is the thesis that I have had for a very long time that once the stock matures, once the company matures, the gains are disproportionate and you saw that the first reaction yesterday.


Around Rs 98-120 is the key. The key is that you are looking at the company which will keep increasing its sales at about 15-20 percent at the minimum year-on-year for the next four-five years.


You are looking at a company which has margins of 29 percent and that’s what they reported yesterday and if I am not wrong, the management said that another 300-350 bps increase in margins without any external factors is possible.


Therefore, it’s a company which has EBITDA margins of 32-33 percent, mature fixed cost and a great business model in place. I think on all parameters the numbers were fantastic and this is just the beginning. So to my mind Dish TV is a stock whose time has come finally.


Q: Do you expect more upside in the stock and if someone is holding the stock, would you advice them to hold on further?


A: Absolutely, there is no reason to sell Dish TV. I think the stock will be surprising on the upside again and again. If you got a good investment and if the numbers starts coming, one should hold on to it. There is no reason to sell Dish TV.


The only time I would sell Dish TV now is when for a couple of quarters the numbers do not come, you see competition climbing up and general disappointment in terms of the business performance.


The real story in Dish TV has just started. So we are at the very beginning. I wouldn’t want to sell Dish TV, not for the next 18-24 months for sure. I would be very disappointed if we do not see much higher levels on the stock.


Q: Anything else that stands out in terms of earnings that you either liked or dislike?


A: Going through the Nifty companies there have been a lot of disappointments. I had a mail yesterday which said about 16-18 companies among fifty Nifty companies reported disaster earnings.


The key here is that a lot of stocks whether it is Tata Steel which is available at Rs 320 or Tata Motors or Tech Mahindra for that matter which will also be a little weak today, the market is currently factoring in a very pessimistic scenario for a lot of these stocks.


If you go back a year, from a complete euphoria we come to a situation where everybody is generally neutral or unhappy with the government, nothing is happening on the ground, but I have an analogy here, you can either be Virender Sehwag and hit six of the first ball and get out or you can be Rahul Dravid and play through the innings and do things steadily. However, the government is more like Rahul Dravid than Virendra Sehwag and I am happy for that.


Therefore, any specific stock, the key is do you believe that the government will do things that it has promised, do you believe that growth will pickup, do you believe that inflation will stay low, do you believe that crude will stay in the range of USD 50-80 per bbl.


The answer to all these questions is a yes and if that is a yes then if you are talking of 7-8 percent growth then there are so many companies available that are cheap.


Without taking specific names public sector undertaking (PSU) banks is something that I have liked for some time now. I think credit growth will pick up, interest rates will come down, margins will improve, asset quality will improve. So take your pick there, one can choose something from there.


You saw a snap reaction in Bharat Heavy Electricals (BHEL) yesterday. A lot of the infra companies are cheap, they are factoring in a situation that nothing is going to improve and I do not believe that.


I am very sure the government is taking the right step, it is doing it slowly and steadily but this is a government that has not done any self goal.


The pace of government might be scaring few people and things have not happened as quickly as the equity markets would have wanted it to but this is a test match, it’s not that things are going to change overnight.

Let’s give them time, they are taking all right steps and there are enough companies there which are likely to give decent returns to the investors over the next couple of years.

First Published on May 27, 2015 09:20 am
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