Brexit catastrophic for all mkts; like Exide, Finolex: Equirius

For JSW Energy reasonable tariffs and lower coal prices have helped their profitability. Moreover company has a healthy balance sheet and has made strategic acquisitions.

With the government’s focus on irrigation increasing, it would boost demand for Finolex Industries. There is expectation of good rural income on back of good monsoon and higher agriculture prices to support sales.

Ashok Buildcon has good revenue visibility on back of new orders and strong order book pipeline.

Below is the verbatim transcript of Pankaj Sharma's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.

Anuj: I was going through your strategy note and you believe that Brexit could be a big catastrophic event for the market, if that is the case then how much downside do you see for the market?

A: It would be a big event because whatever we have seen so far in the last five-six years, if this plays out and Britain decides to exit EU. I think it could be a 5-8 percent kind of a downside event and that affect global markets and it would take a bit more time to recover and especially in an economy like India where we have a lot of close trade relations with EU and even Britain, so in that case we would be affected definitely a lot more, so it is a bad event for global markets but I would be more worried about markets like India which have better and close ties with these geographies.

Ekta: Can you dwell a bit more in terms of what you think would happen to the floor picture from the foreign institutional investors (FIIs) stable, would there be an exodus of flows and do you think that the currency would go back to fresh lows. Would that be the extent of the negativity?

A: There are three possible implications. One, you would see a lot more volatility on currency and that would affect a lot of the companies which have that exposure and considering that we have a situation where lot of the companies which are important for us and even the largecaps which would have considerable exposure especially in pharmaceuticals, IT and for these companies it would be a big event and also in terms of how FIIs would perceive this event. I think overall this would be an event where people would flock to safety and in terms of relative preference it would make emerging markets much less attractive for them at least for the time being.  In terms of whether the relative allocation to India, it would impact that. I do not think that would be the case but overall the currency volatility and risk aversion which would set in among foreign investors that would play out negatively for Indian markets as such.

Anuj: Let's discuss some stocks. JSW Energy has done well but you have an aggressive price target on this?

A: It is a better perspective because JSW Energy one stock in this space which is perfect and balanced combination of risk aversion at times and when it requires, they are very aggressive also. So it is not in a category where you would say that the company is heavily risk averse, they do not do that or something else which is very aggressive and how they bid for project, how they look at acquisition opportunities. However, JSW Energy is a perfect combination. So when we look at how they have tried to change the exposure which they have to, the power purchase agreements (PPAs) and the raw materials, they have done a good job and also looking at their acquisition strategy, they have been very opportunistic and have paid very reasonable prices for the assets wherever they are and they have not looked at assets which are bad. They have looked at all the assets and evaluated those plant which were very good at least great operating history, for example the recent acquisition which they had of 1,000 megawatts plant of Jindal Steel & Power (JSPL), it is a phenomenal plant; if you see the operating history, if you see the machines, it is a great plant. So, in those cases when they are not paying that high and paying a reasonable valuation and balance sheet also is a very reasonable shape. I think it's a stock which would continue to do well and we see that there is more clarity emerging on the emerging PPAs which are getting signed and visibility, if that increases especially in southern markets, it would be great for JSW Energy.

Ekta: You like Exide Industries. You see 20 percent upside from the current market price. What that is predicated on and if you could share your thoughts in terms of if in case goods and services tax (GST) does come through, how would it impact Exide considering the unorganised segment that it works in?

A: Taking the second part of the question, GST would be very good for players where we have significant presence of unorganised sector. This includes stocks like Exide. This also includes stocks like Symphony. These are the sectors where you have significant unorganised sector presence and GST coming through would be very good for these companies as the market would get more organised and it would move to players like Exide and the strength of these companies would definitely be visible in that.

Second, what has changed particularly for Exide; in the last 18-24 months, two things which have been very positive for them is that they have started to focus very aggressively on after sale service. This has been a key problem area for Exide. It is a well-known brand and it's a leader in that but people typically were not very happy with the service standards that Exide has and that is something which they have addressed and corrected. Also in terms of their investment in technology, the tie-ups which they have done and they are focusing on technology upgradation for their products and that is something which is going to help them.

Third, in terms of their geographical diversification and product diversification, they have tried to fill the gaps which they have had in their offering and that has helped them, so the stock has done well in the last three-six months but I don't think it's time to take a breather. It continue to do well and we would see better results going forward for them and that's why we think that Exide is a great story and one can invest in even at these.

Anuj: What about Finolex Industries because it has a one way rally from Rs 250 to Rs 400. Are you a buyer at current levels?

A: It is a primary exposure to good irrigation spending we are going to see. What we have seen in the last 18-24 months and especially the approach of National Democratic Party (NDA) government, they are trying to address the importance of monsoon the economy has and how they would do it. They would do it by increasing the irrigation areas and look at the agriculture in a way that it doesn't remain that exposed to monsoon and the vagaries of it and in that situation if you see that after two successive year of failure of monsoon, it is a great time because India Meteorological Department (IMD) forecast has also been good, government is also trying to address the issues of excessive dependence on agriculture and all that would be very good for companies like Finolex. Their exposure is slightly more to irrigation. I think it is going to be a bigger beneficiary than other pipe manufacturers and as you rightly said Rs 250 to Rs 400 was a one-way rally but there is more steam left in the stock and it would do well at least for next three-six months especially when the monsoon is good.

Ekta: Your views on Ashoka Buildcon. Do you think the pickup in the road sector is eminent for them as well?

A: It is a situation where we have seen in the last two-and-a-half-three months there was a one-off kind of event where they had an issue with regulator and compliance authorities but overall  macro part is still looking very good for them. If I look at the macro opportunity which is coming their way in terms of more awards of road and better bidding for National Highways Authority of India (NHAI) projects, they are extremely well placed to benefit from that and that is something which will be very good and after the correction, which we have seen, it's a great price at which you can buy it and macro opportunity is best placed among the road players to benefit from that opportunity.