Don't buy Just Dial now; Bata good long-term bet: Mehraboon

Mehraboon Irani, Nirmal Bang Securities remains positive on Indian equities and suggests entering the market on dips.

"At present there is nothing that suggests a bearish case for market for the next few months. However, after the recent sharp run up, the market could pause or come down a bit, which in turn would provide buying opportunities," he said in an interview to CNBC-TV18. On specific stocks, he likes Bata India as a from a one-two year perspective. "The company is likely to improve its operating margins at least by 2 basis points to 76-77 percent from 72 percent. It is also trying to replace low value products with high value products, which will aid the stock," he added. Meanwhile, he does not advice retail investors to buy Just Dial at the listing price. He sess L&T Finance Holdings and Mahindra & Mahindra Financial Services as the two prime candidates for banking licenses given their good business model. However, one should look at them from a longer-term perspective. Also read: Most stocks ex-consumption, pharma, FMCG to fall: Philip Capital Below is the verbatim transcript of his interview on the CNBC-TV18 Q: How are you feeling about how the first part of June has shaped up and what are you telling your clients to do? Prepare for more weakness or some stability here? A: After a sharp run-up which we saw over the last couple of months, which was mainly because of the illusion that macros are improving and they have improved. However the news which we got over the last few days has definitely dampened sentiment. So, post the improving macros what needs to happen is that things on the ground need to improve for the better but at least we are not seeing it happening right now. Gross domestic product (GDP) numbers can be dismissed off for the simple fact that we all know that the government is trying to avoid a downgrade; spending has come down. What we need to see right now is more action on part of the government be it land acquisition act, be it the coal pricing, be it the merger of public sector banks. All these things markets will be looking forward to. Apart from that the things on the ground need to improve; we need to have better data at least from cement companies’ dispatches, auto sales numbers which as of now is not happening. However, that doesn’t mean we can dismiss the markets off. At present nothing is suggesting for us to make a very bearish case in India for the next few months. So we remain positive on the markets. However, after the sharp run-up that the market has seen it is distinctly possible that the markets could pause, could come down a little bit, providing opportunities for buying again. The problem for the markets if any is that the market has got completely polarised in favour of certain sectors and less than 100 stocks right now, but other stocks are languishing at less than 30-40 percent from what they were the last time when we had seen 20,000 way back in 2008. Q: How would you approach a stock like Bata India, it saw quite a bit of run-up yesterday, the company has announced a Rs 100 crore capex plan and lots of brokerages are advising a buy as well? A: It is positive for the stock. We remain positive on the consumption space. Bata was a great opportunity when they announced the numbers which were not up to expectation and the share had come down very sharply but post that the share has gone up. If you see the balancesheet, there is huge cash in the books and ultimately they are capitalising a part of it by issuing bonus shares. More important is the fact that we are expecting the company to improve its operating margins at least by 2 basis points for the simple reason that the company’s contribution from leather is supposed to be quite good from the present 72 percent to around 76-77 percent over the next one month. It is also trying to replace the low value products with some high value products as a result of which the margins will improve. Over the next 12 months the company is looking at increased penetration which should bode well for them. All said and done, despite the sharp run-up in the share price of Bata, it provides a decent opportunity in the consumption space from a one-two year perspective. _PAGEBREAK_ Q: What is your sense on the listing for Justdial and what would you advice investors to do post listing? A: It is very attractive no doubt and has met with great reception from the applicants. The stock should meet with very decent opening today and should settle down at fairly decent prices. However, to buy so early on listing is not the best thing to do, definitely not for retail investors. So we would possibly stay away for the time being, allow the stock to settle and then take a call on it. Q: Would you buy any of the Non-bank financial companies (NBFCs) in the run-up to whether or not some of them get a banking license? A: I am a strong believer that nothing is going to change for the profit and loss of some of these companies and they have already run-up in anticipation of what is going to happen. However, some of the better names definitely merit consideration from a longer term angle, names like L&T Finance Holdings and Mahindra & Mahindra Financial Services. These two are great companies, have good businesses, for banking license they are prime candidates.
So if I am an investor from a longer term then one can look at them. So, from short-term angle as and when it happens, definitely it will lead to pep-up as far as the share price goes. However, to buy expecting banking license to come, at the present valuations from the shorter term angle would not be the best thing to do. Although from longer term angle these two are the better stocks among all the companies which can possibly end up getting a banking license.