Auto, FMCG, consumer durables to benefit from GST: SBICap

SBICap Securities is expecting a 15-17 percent growth in the auto industry. In an interview to CNBC-TV18, Mahantesh Sabarad of the firm said sales will catch up on the back of a good monsoon, increased private sector investments and purchase of vehicles before tighter emission norms kick in.

Mahantesh believes various sectors will be impacted by the rate of Goods and Services Tax (GST), expected to be around 18 percent. In a GST-implemented environment, he said, sectors like auto, fast moving consumer goods (FMCG) and consumer durables are going to benefit the most. "Those companies which have a wider range of products domestically will obviously do better," Sabarad added.Below is the verbatim transcript of Mahantesh Sabarad's interview to Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: I want to first discus Ashok Leyland, two months now that we have seen this slowdown. Does that concern you and it is not cheap stock, so do you see this stock correcting quite a bit from here?A: Yes, there are concerns about its way forward and the slowdown that we have seen or the negative growth that we have seen in Ashok Leyland's volume numbers is got to do with a base effect. I am not talking base effect of last year, I am also talking about the base that has been built up in the past few odd months, so a lot of inventory push.However, having said for the industry as a whole we think that the commercial vehicle industry should be growing somewhere at 15-17 percent for the year over the last year, that is for FY17.Ashok Leyland in the meantime has done wonderfully well last year as well as continuing to do this year because of one particular model, which is a 3718. This is where they have had a free run because their competitor never could manage to get a competitive product out there, but that is a thing of the past now therefore Ashok Leyland is a worry.Ekta: You did speak briefly about the commercial vehicle (CV) space, but what is your sense in terms of where exactly the medium and heavy commercial vehicle (MHCV) space will be at the end of this fiscal? We have seen Tata Motors also reports sluggish MHCV sales, so your sense in terms of what’s going to lead the growth if in case and how much of a recovery?A: We are essentially looking at something like 15-17 percent growth for the industry as a whole for this year. The sales have been sluggish for the first initial few months of the fiscal year but I am sure they will catch up partly because of good monsoons, partly because of revival in private investments and let us not forget that also this pre-buying effect that we will see due to tighter emission control norms coming in.So hopefully all those things will mean by the time we hit FY17 yearend and as we look for the past 12 months, we should see better growth.Anuj: Two stocks which have been stunning Maruti and Eicher Motors, a word on the sales momentum for both those companies and your view on the stocks?A: Both these stocks -- until these results and until this rally -- were a buy for us, but now post these results we have downgraded them to a hold. The momentum, the stock rally has been so swift and fast that it is becoming more expensive.If you take Maruti, it is on a one year forward earning basis hovering around 18-20 multiple mark and if you look at an Eicher Motors, it is far more expensive it is closer to like that 28-30 multiple mark. So for us both the stocks are becoming a little expensive and the growth while in Maruti is slowing down, we are not seeing that slowdown effect in a big manner with Eicher. Of course, one can argue and say a 60 percent growth has become a 32 percent growth -- by itself 32 percent growth is very strong.Ekta: What did you make of the Bajaj Auto numbers especially the domestic growth this time?A: For us for Bajaj Auto in the domestic space more than the volume growth, we are little concerned about the entire industry’s growth and Bajaj’s ability to raise market share. So it is very difficult to comment only purely on the individual numbers, we would rather look at the wholesomely or what the industry growth has been and who has lost what kind of market share, because market share is becoming critical for two-wheeler players in the domestic space.Having said that, Bajaj Auto -- when you look at it from a stock call perspective it is more to do with its exports business and therefore any loss in market share in the domestic market doesn’t surprise Bajaj Auto much.Anuj: The other space which has been quite active and I want your thoughts on that if you track it is the whole non-banking financial companies (NBFC) space, of course, Bajaj Finance is a different case altogether but there is a big rally in most of the names. At current levels how is the risk reward stacking up?A: So some of the stocks have become very expensive. One of them is Bajaj Finance or in the microfinance space Bharat Financial Inclusion. So many of these have become very expensive place, but since the NBFC sector is very large, there are a few stocks available out there, which I would reckon have good prospects of growth ahead.In a falling interest rate environment, the NBFC tend to do better and if you are an NBFC, which is focused on smaller ticket size loans rather than large ticket size loans then you tend to do far better.Ekta: Goods and service tax (GST) seems to be within kissing distance now at least the constitutional amendment. Your sense in terms of which are the stocks which you would buy ahead of the GST rolling out whenever it does in terms of execution challenges, etc?A: Our thought process is something like this of course GST is very important and historic moment. It is going to be beneficial for the Indian economy as a whole, so we are not taking that away from the GST bill. For us in the markets we have to understand what is the tax rate going to be. Are we going to have tax rate which is 18 percent or are we going to have a tax rate which is higher than 18 percent? So the call on individual sectors will -- to a large extent -- depend on the rate. Of course, it goes without saying that those companies which have a far wider distribution base of products, domestically speaking, will tend to do well to the fast moving consumer goods (FMCG) names, to an automobile names, consumer durable names will obviously do better in a GST kind of environment.