Last Updated : Apr 01, 2013 12:20 PM IST | Source: CNBC-TV18

Check out Angel's top picks in NBFCs & auto sector

Rajen Shah, CIO Angel Broking finds Punj Lloyd and HCC very interesting at the current market cap. He told CNBC-TV18 that one can accumulate them current prices for long-term gains.

Rajen Shah, CIO Angel Broking finds Punj Lloyd and HCC very interesting at the current market cap. He told CNBC-TV18 that one can accumulate them current prices for long-term gains.

His picks in auto are 1) Mahindra & Mahindra (M&M) on strong growth over the past 12 months. 2) Escort, on its last quarter bottom line performance, which saw a spike up of 200 percent and the margins also improved significantly.

Amongst the large cap, Reliance is one stock he is bullish on at the current levels of Rs 772.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: The big star on expiry day was Punj Lloyd shooting up more than 20 percent, any thoughts on that stock?

A: Punj Lloyd certainly looks very interesting at the current marketcap of about Rs 1,850 crore. It is turning around and this time the turnaround is going to be for real.

Even in the first nine months, we have seen reasonably fine performance on the topline, though the bottomline has been a little disappointing. However, at Rs 55 levels, the stock looks interesting. The kind of order book position they have, its almost about Rs 24,000 crore that is also likely to improve in the coming quarters. So, we would be positive on Punj Lloyd.

In fact, a lot of names in the infrastructure space are looking very interesting. HCC also was looking very interesting at marketcap of about Rs 850 crore and with order book position of more than Rs 15,000 crore. So, these all companies need to be accumulated at these prices for long-term gains.

Q: You keep an eye on these non banking financial companies (NBFCs), would you buy any of these companies like Manappuram Finance or SKS Microfinance now?

A: No, I am not a fan of either Manappuram Finance or SKS Microfinance. However, there are two companies in the NBFC space, which look very promising from a longer timeframe.

One is Aditya Birla Nuvo, which has Aditya Birla Financial Services. There we expect something on the banking front also to happen. The stock has also come down from Rs 1,175 levels to Rs 975. So, it has corrected almost about 15-20 percent. It is quoting at 10 times the next year earnings. A few days back the promoters have taken up almost 67 lakh shares at a price of Rs 910. The promoters are putting in about Rs 550 crore and raising their stake from 49 percent to 54 percent. Certainly, this stock looks very interesting. Another interesting thing about Aditya Birla Nuvo is that five years back the stock was quoting at Rs 2,000 and today it is quoting at 50 percent below that price. In these five years, the company’s net profit has gone up 300 percent. So, this stock looks very interesting.

The second stock that I like in the NBFC space, is Bajaj Finserv. The stock has corrected almost 22 percent from Rs 979 to current levels of about Rs 769. Insurance we believe should do extremely well in the coming years. They own 74 percent stake in Bajaj Alliance General and Bajaj Alliance Life. They also have a stake of about 60-62 percent in Bajaj Finance, which may go in for banking license. It is trading at just about ten times next year earnings.

So, these two stocks look very promising. Good management, valuation and prospect, certainly stocks are worth accumulating.

Q: Would you buy Tata Motors at Rs 269?

A: It looks interesting, corrected almost about 15 percent. However, my picks in auto would be Mahindra & Mahindra (M&M). The kind of models they are coming out with that is going to do wonders to their top line and bottom-line. This is one company which has shown a very strong growth over the past 12 months.

Infact when the auto industry is going through such a crisis, a significant slowdown in the sales. M&M is able to withstand that and actually grow. So, that is one positive for M&M.

Secondly, Escort is one stock which we need to look at. In the last quarter the company’s bottom line went up by 200 percent and the margins also improved significantly despite no growth in tractor sales. The stock has come down from Rs 76 levels just about two months back to current levels of Rs 49. So, Escorts at a market cap of Rs 607 crore looks actually very interesting. Actually, it is just quoting at 7 times.

Infact plenty of stocks are on sale right now in the market. We have lot of companies in India coming out with sale every year. Zodiac will come out with sale in the month of February and Bata coming during monsoon that is July-August. However, in stock market we don't know when the sale is on.

The sale is currently on in stock market. How long will it last I don't know, but a number of quality midcaps are down anywhere between 25-30 percent. Times like these need to be seriously looked at. Some of the gold and real estate assets should be sold out at these levels. One should make an entry into the markets for those who actually missed out on this investing in the market. So it is a great time to accumulate very good quality companies on is getting at 5-7 kind of PE multiples and one should really jump into buy.

I have been hearing lot of bearish voices on number of channels but time will show. Why are Foreign Institutional Investors (FIIs) investing USD 12 billion dollars in three months in the Indian market? So, significant industrial slowdown resulting in such a poor economic growth, weak currency, political uncertainty, high interest rates, non functional governments because the government is acting very slow.

These are the various hammers of nature molding companies to highest levels of efficiency and productivity. Only during tough times like this companies cut excess flab, trim down their workforce, become more efficient, and manage their inventories and forex well. When times will change in the next 24-36 months, these are the companies which are going to report very high margins and very good profit numbers. So, one should look at this market from a little longer time frame.

Q: If you had to pick one large cap name with reasonable certainty of returns from the index what would that be?

A: Undoubtedly Reliance Industries. I have been bullish on Reliance for quite a while. It went up to Rs 940 and has come down to Rs 772 levels. It is now very close to hardly about 7 percent above the buyback price of Rs 725-730 and at hardly 11 times the next year earnings. The stock looks very interesting. I am expecting a very strong growth in the next few years for Reliance. Bottom-line growth of at least 15-17 percent is expected over the next three-five years.

It could be more than that if the gas pricing works in its favour. Plus the retail business also may be growing very strongly. We are going to see 35 percent plus kind of growth in the retail business of Reliance. I am talking about the retail business not the petrol pump business. Even that is going to see a take off because so far most of their petrol pumps were shut as they were not able to compete with Oil marketing companies (OMCs).

However, now with diesel decontrol happening over the next 18 months that also should do very well. So, Reliance is one stock which I would undoubtedly bet on at the current levels of Rs 772 with a very strong upside.

First Published on Apr 1, 2013 10:48 am