Centrum Broking is likely to focus on niche ideas at its one-day Centrum Investor Conference on May 29 in Mumbai, says Dipankar Choudhury, head of research for institutional equities of the broking firm. According to him, the broking house is looking at a lot of niche ideas that are surprisingly midcap companies across various sectors.
More than 50 companies are expected to participate in the conference.
Choudhury is bullish on Techno Electric and Star Ferro which have performed well this quarter and are expected to continue that going ahead as well. He also adds that Dish TV earnings surprised on the upside, reporting better-than-expected numbers. He believes margin expansion in this company is likely to sustain going ahead.
Among banks, Choudhury gives a thumps up to Lakshmi Vilas Bank for consistent good earnings over a year and no slippage in its restructured assets.
Below is verbatim transcript of the interview:
Q: In this conference you decided to focus on the midcap space. Walk us through the outlook that you see for the midcap space. Which are the themes that you think will do well and the type of companies that you are profiling?
A: More than midcaps, we are concentrating on niche ideas and incidentally, virtually all of them happened to be midcaps. We do not have an overriding theme for this conference other than the fact that they are niche ideas. Virtually, none of them represents the over riding themes of their relevant sectors if at all they fall into any prominent sectors. So, that is the complexion of the conference as such; in all about 48 companies and virtually all of them midcaps from all sectors. I mean there is no specific sector preference as far as this conference is concerned.
Q: You have a very interesting list of companies that are attending your conference. Names like Voltas have had a very good turn-around and a stock performance as well. What is your sense about the midcap earnings performance this time? Has it been worse than your expectations? Have there been any bright spots and if ye, where?
A: Indeed, there have been quite a few oases in the desert of despair that we have seen. For example, virtually all cement companies have disappointed, but we have seen one major outlier which happens to be a participant in this conference as well, which is Star Cement. Once again, almost all power equipment companies have disappointed, but we have Techno Electric which has outperformed.
These two have posted margin expansion. Likewise is the case with Take Solutions within the IT space and quite a few other examples. So, while we will not commit to saying that all midcaps as an asset class have outperformed or they have beaten estimates, but there have been definitely pockets of hope and bright performance particularly in the fourth quarter where earnings in general have tended to be very disappointing.
Q: Star Ferro and Cement, Techno Electric as well as Take Solutions are few pockets of strength in the midcap space. But the other one which did very well in the midcap space was Dish TV. It positively surprised the street with a profit figure this quarter. Do you think that this turn-around is sustainable in Dish TV and what could be the kind of growth Dish TV clocks in from here on?
A: Yes, it has pleasantly surprised and it has beaten the street estimate as well as our estimates. High definition (HD) and their new brand has been actually clocking very good subscription numbers. So, the margin expansion is also a sustainable because they have got into encouraging contracts with the broadcasters.
These are actually sustainable moves, at least for the next one year if not more than that. This is likely to sustain give or take a few basis points here and there. Yes, Dish TV’s performance probably has been the most encouraging within this pack that we talked about.
Q: One of the bright spots this time around is in some of the smaller public sector (PSU) banks. The asset quality has either been maintained or has improved marginally. From that space you like Lakshmi Vilas Bank that reported a good set of numbers this quarter. Is it only Lakshmi Vilas or are there any other pockets or any other names that got your attention this quarter?
A: Actually, it is a long list and the entire banking, if you take PSU banks and the old generation private sector banks, their performance over the last few quarters has been extremely patchy and it is hard to call these quarter-to-quarter fluctuations and credit quality, that is the single most important parameter that we look at, at this point in time.
However, Lakshmi Vilas Bank has pretty consistently outperformed this trend over the past one year and not just one quarter.
It is probably the only bank which has not seen any slippage from restructured assets during the whole of FY15. So, that is definitely some kind of an achievement because we still have not seen the entire restructured assets working its way into the system, slipping into non-performing assets (NPA) and the process has not really stopped so, that is a very encouraging sign as far as Laxmi Vilas Bank (LVB) is concerned.
There have been other improvements in terms of cost/income ratio, etc. despite addition of, the frenzy of addition of branches. Business is also grown roughly double the sector average. So, that is definitely a very big positive for LVB. In that sense it is not a bell-weather for the sector but also once again a positive outlier.
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