Bullish aviation; like InterGlobe, Pidilite, Bosch:Motilal Oswal

The InterGlobe Aviation management could have handled communications of its earnings better, feels Rajat Rajgarhia, Managing Director-Institutional Equities, Motilal Oswal Securities.In an interview to CNBC-TV18, Rajgarhia says he is bullish on InterGlobe and the aviation sector in general. Among other stocks, he is positive on Pidilite, saying the company has shown strong growth and will benefit from a strong brand and low commodity prices.He is bullish on Amara Raja, Bharat Forge, and Bosch in the auto ancilliaries sector.Below is the transcript of Rajat Rajgarhia’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: Before I get your view on the markets, I wanted to ask you how you have reacted to all of this news flow around the aviation space, especially, around IndiGo, because that is a stock that has made Motilal Oswal a lot of money in a lot of their funds. Q2 numbers came as a shocker, but now the stock seems to have put that behind it and is back on a winning trajectory. How did you read into it?A: As far as the holdings in IndiGo is concerned, I guess you will have to check with our asset management team. That is a separate unit. However, coming back to the view that my research team has, we have been quite positive on this company. In fact, this whole space over the last six months has been looking quite interesting. IndiGo being the market leader, always looked a lot more promising.The story looks fine. It is just a question of some moderation in expectations that have happened post the results. Of course, the whole thing could have managed a little better, considering that the initial public offering (IPO) happened after the Q2 results, expectations have been running quite high considering the outlook that the sector had. So, all of that communication could have been handled a lot better.Once people develop more understanding about how to look at this sector, you will see one or two quarters of more adjustments. The core thesis of a 20 percent volume growth in this country sustaining for sometime low oil prices and almost, a 35-37 percent kind of a big market share player should do good to this company. I guess, you are going to see the stock stabilising after the kind of correction that we have seen. Investors would like to wait for one or two quarters.Also, this entire news flows about the delivery of the aircraft, etc, once it subsides, the focus will start shifting back on the earnings.Latha: What did you make of the Axis' earnings and now, would you be positive or negative on the coming bank earnings, especially ICICI Bank?A: There are two important things to look at in the bank earnings right now. First is the macro, which is not improving at all. If you look at the growth rates, they are still being tempered down for the system. Credit growth is not. You know all the reasons why the macro is not looking good.As far as the micro is concerned, there has been a huge element of fear around this entire corporate lending book of all the banks. We have seen how these stocks have reacted. The quarter that Axis reported, at least helped to reduce those fears even though they did not get eliminated.The next couple of quarters is going to remain more challenging. While Axis did come out with a more specific guidance for Q4 -- right now, the way stocks keep on behaving, investors are looking at stock prices more and making assumptions rather than what managements are guiding for.Tomorrow when ICICI reports, people will be watching out for the guidance that they spell out, but I guess we are into a fearful environment where fear is more dominant than what the numbers are right now trending to report.Sonia: I was going through some of your plays in the consumption space. You recently upgraded Pidilite post the strong earnings growth from the company. Do you expect a consumption uptick and in names like Pidilite, do you expect the stocks to perform despite steep valuations?A: If you look at the whole consumption space, despite the last five years when the gross domestic product (GDP) growth has remained pretty dismal and we have seen inflation remaining high, many of the consumption stories has come off where stocks have delivered return of up to 10 times. We have to somewhere here broaden out horizon on what constitutes consumption. It is not just a typical fast moving consumer goods (FMCG), but it is something which constitutes where the consumer wants to spend upon.Pidilite is a fantastic company. Look at the last 10-30 year return of that company. It is a compounded annual growth rate (CAGR) of 25 percent.Last calendar year, when the stock delivered an earnings growth of almost 40 percent, the stock was flat because starting of the year, valuations looked pretty steep. But after this kind of an earnings growth, I think it is more into a reasonable zone. Low oil prices are here to stay. The brand is helping them withstand this low volume growth environment right now. This is one of the few companies, which has been able to absorb a large part of the raw material benefit into their earnings growth, which has made the growth look pretty high. Now, under a new management, we have Bharat Puri, one of the first professional CEOs in the company.All in all, the story looks pretty good. Valuations today are a lot more reasonable than what they were a year back and these are more absolute return stories. Do not look at them in the context of the market. You can have these stocks, which can continue to compound at 15-20 percent for the next five years from here.Latha: How do you stand on the various auto ancillaries? I do not see them in your list. You have Amara Raja and Bosch, but how would you look at the other auto ancillaries which used to be so much, the fancy of the market, the likes of Motherson Sumi, the Bharat Forge etc?A: Some of these auto ancillaries are not under our active coverage. That is why you do not find them in the model portfolio, but yes, you see Amara Raja, Bosch, Bharat Forge, all of them still in the model portfolio. We are very positive on this whole space.I just want to give in context. In the strategy report that you are referring at, you will see that over the last 10 years, one of the biggest sectors that has made impact on the index weightages is autos where the weight has doubled from 5 percent to 10 percent. My own belief is that in this cycle over the next five years, you may see autos taking a claim to be the second largest weighted sector in the market after financials. You have many good companies. I am not talking about the top six, I am talking about the companies below the top six, each one of them with a market cap between USD three billion and USD 10 billion. The growth rate in India is yet to pick up.Many of these companies have a lot of advantages to them and in this low commodity price environment and the positive volume growth expectations, these are companies, which have very good balance sheets, have managements which have built competency and market cap which will help them enter portfolios of large.So, we are as a house, generally quite positive and that is why you see many of the stocks like Amara Raja, Bosch, Bharat Forge and a lot more in the years to come which will find place in our model portfolio.