Prabhudas Lilladher: On TCS, Infy, Crompton Greaves, Exide

Ajay Bodke of Prabhudas Lilladher tells CNBC-TV18 why he prefers private sector banking names over public sector banks. He also talks about select stocks such as TCS, Infosys, Crompton Greaves and Exide.

Below is an edited transcript of his interview. Q: What are you telling your clients on the TCS versus Infosys debate after the way the prices moved last week?
A: TCS has returned its superlative performance in our view and on six quarters in a trot it has outperformed all other comparable peers. However, our analyst view is essentially that most of it looks like having been priced in. On Infosys, although they have been disappointing quarter after quarter, on the valuations front, our belief is that there is not much to lose from current valuations. We are trading at around 14-14.5 times one year forward earnings with an expected CAGR of 15% earnings over the next two years.
If the company is able to get its act together on two issues, essentially consulting and systems integration pie which contributes around 30% which is essentially the discretionary spend but the company has seen pressure in terms of volumes. That’s an area the company has to look at on a war footing as to how to ensure that part of the business stabilises and eventually grows.
The second area of concern there has been the BFSI segment contributing around 34%. There I believe the investment banking part is what is bleeding and not the commercial banking and the insurance part. These two large chunks constitute 64% of the business need to stabilise.
The company is in the transformational process wherein we believe that the pricing for the next two quarters will continue to remain under pressure. The company will adopt the price warrior kind of strategy. So from the valuations front, our analyst has been more positive from hereon over the next one year period for Infosys and we believe there is not much to lose there. Q: How would you approach the numbers of Exide and Crompton Greaves?
A: On Crompton, we would still be slightly wary because we would like to see their key businesses both the industrial and the power businesses stabilise and hence we have a hold on that stock. We prefer Amara Raja over Exide in the battery business because we are expecting a very strong earnings growth in Amara Raja, around 17.5% earnings growth in the current financial year followed by a similar kind of growth in FY18 and with a strong return ratio around 28-30% in that name. Q: Any thoughts on the commodity stocks like the sugar space that started moving again? Would you buy anything from there?
A: Not really. We are not recommending any purchases out there in that space. Q: What do you expect from the PSU banks this quarter?
A: Our preference still remains with private sector banks. Even out there what we are distinguishing is between beta names like ICICI Bank and Axis Bank on one hand and some of the steady performers like Kotak Bank, IndusInd Bank or HDFC Bank. Our analyst is of the view that in the latter bunch essentially Kotak, IndusInd Bank and HDFC Bank, the valuations are quite high and some of the concerns on the asset quality we believe have been overdone in case of ICICI and Axis Bank.
And valuations being supportive we are advising our clients to selectively take profits from IndusInd, HDFC and Kotak Bank and move it to ICICI and Axis Bank. On PSU banks we believe that asset quality concerns will continue.