Vinay Pandit, Senior VP - Institutional Equities, Centrum Broking is not expecting any major downside in the market from the current levels of around 8300. According to him, the earnings will shape up going forward and the current correction in the market is only short-term earnings disappointment.
Speaking to CNBC-TV18 on the sidelines of his one-day Centrum Conference in Mumbai today, Pandit said he’s bullish on IFB Industries and MRPL and have increased his target price to Rs 780/share and Rs 104/share respectively. Both the stocks have given multiple returns over the past 12 months and therefore, can be called multibaggers.
Below is verbatim transcript of the interview:
Q: Your conference begins today, you have one-day conference and you have a lot of midcap companies participating in it. Many companies that are participating in your conference are from manufacturing space and over there we have seen a bit of slowdown in terms of earnings this quarter. How have earnings shaped up and when would you expect a recovery to come through?
A: If you look at the earnings shaping up going forward, we are looking at largecap earnings to shape up at around 10-12 percent growth. In terms of midcaps you are looking at a 15-20 earnings growth shaping up over the next 9-12 months. So, in terms of earnings that some of these companies have delivered we have not seen major disappointments in a lot of the midcap companies.
There have been some disappoints in some of the midcaps, in some of the largecaps. However, overall we continue to be positive in terms of what manufacturing, the kind of infra growth that we are seeing, the kind of impetus that will be paid to infra projects, the goods and services tax (GST) implementation coming in and if we have a good monsoon then we are on a roll six to nine months from here.
Q: Are the street expectations for FY16 earnings higher than 10-12 percent that you are anticipating? Do we still face the risk of a downgrade to the earnings assessment and if yes what impact can that have on the market?
A: Around 10-12 percent is a fair assumption. I don’t see a major downgrade or a major risk to that estimate. So, we have seen some profit booking from 9,000 levels. The current market levels that we have seen at 8,300-8,400 factors in the short-term disappointment. So, I don’t see any major downsides from here.
Q: The stock of IFB Industries has had a very strong performance this year. It is up almost about 40 percent. What is the story there and how much more of an upside do you see?
A: The story in IFB is pretty simple. It has been a front-load washing machine player for a long time, having a huge market share in that space. The big change that is happening in its business is now in terms of top-load washing machine wherein it would be doing domestic manufacturing at its Goa facility which allows the company the operating leverage, the margin play coming in. That also allows it IFB to increase its product basket.
The company has a front-load where it is a market leader, it has a top-load now coming in, it has ACs and refrigerators also within its portfolio, so definitely this will help the company grow at a 25-30 percent compound annual growth rate (CAGR) over the next two-three years.
At the same time it is also getting into a contract manufacturing tie-up with a Japanese player, so that will further help IFB boost its manufacturing capacities as well as help drive the operating leverage. Going by that the gap between a player like IFB which has been under valued for a long time and a player like whirlpool would keep reducing as we go forward because the company will continue to deliver margins.
It has historically been at 4 percent margins. We see it moving to almost 9-10 percent margins. The earnings growth of almost 25-30 percent will aid the earnings re rating for this company and definitely. We have a target of Rs 780 per share on the stock currently, we are valuing it at 25 times.
Q: We were just highlighting how the stock has seen a rally of 500 percent in the last 12 months itself, so it has already been such a big multibagger. The other one that you are recommending is MRPL. This one too has seen a pretty good rally so far in 2015 with a gain of about 45 percent. How much more upside do you see in MRPL?
A: On MRPL, we have a target of Rs 104 against the current price of around Rs 65-68. The big change that we identified in this stock was that its phase-3 commissioning was coming into place. This would have helped improve its product slate. Further this is also helping improve the company’s gross rent multiplier (GRM).
MRPL’s core GRM which was as low as USD 0.4 last year end of Q4, FY14, has moved up to USD 6.7 in Q3 and in the last completed quarter they have reported core GRM north of USD 8.
With the petrochemical (Petchem) plant commissioning happening now, we are expecting further USD 1.5 core GRM improvement. So, definitely this stock is showing the kind of promise that we had anticipated with the phase-3 commissioning coming in, with the Petchem plant coming in, with the product slate improving, the product basket improving.
Overall, the company is definitely a multibagger and if we look at it, they have also acquired a 51 percent stake in OMPL now. So, if we look at the valuation, OMPL would be approximately Rs 14 a share for them and their core business would be valued at approximately Rs 90. So, that gives you a target of Rs 104, which is a huge upside from current price of Rs 68-67.
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