PN Vijay bets on ICICI Bank, DLF; cautious on Tata Motors

PN Vijay, portfolio manager, askpnvijay.com, says that L&T buying 50 percent stake in Future Generalli will be a trigger for L&T Finance in the long term. ICICI Bank at current level is a good buy and can provide a return of 20 percent in next 12 months. DLF at Rs 240 is an excellent pick and is a best pick among the real estate space.
 
Below is the edited transcript of his interview to CNBC-TV18.

Q L&T Finance is in focus as it may buy Future Group's 50 percent stake in the insurance business. How would you approach that impending news flow and would you recommend any of those stocks?

A: This news is a long-term trigger for L&T as insurance is a very large business and has great potential in under-insured country like India. In the short term, neither the management nor the investor should expect any great gains from this move as this is a cash following businesses. Insurance companies in India are yet to become cash generators, in the short term it might be negative for L&T Finance. In the overall strategy, L&T is also bidding for a banking license and this stake holding will auger well as this entity would then become a type of holding company for a very strong verticals and the sum of parts valuations would go up.

Q: How would you approach banking stocks? Do you think there will be more valuation contraction or some kind of meeting point between public and private banks or enough damage has been done on the private sector names?

 A: A lot of damage has already been done. ICICI Bank is currently trading above Rs 1,000, which is a good buy. I think the system has taken a mature view of the sting operation and it will not do any great damage any further. I think ICICI Bank's loan built up especially in the retail sector, is very strong. There is softening of interest rates in the bulk deposits, so net interest margins should remain fairly stable.         

NPAs have been an issue for a long time but there have been no great additions to NPAs in this quarter. I think on a whole, the negative sentiment in the market towards banking stocks have fallen after that event. I think ICICI Bank above Rs 1,000 could be very attractive, and can give a return of 20 percent in next 12 months.    
 
Q: Is DLF a good buying opportunity?

A: I think DLF is a good buy. DLF has gone through an excruciating period but they are straightening out their balance sheet very properly. They have reduced their debt by asset stripping. High debt can be attributed to the current price of the stock.

Going forward, I think some lumpy commercialisation of their land banks into sellable real estate and leasable real estate is happening in Delhi NCR. Given these conditions, DLF at around Rs 240 is an excellent pick. Though this stock is risky but it is a best pick in the real estate sector right now.

Q: Would you buy Tata Motors at Rs 270?

A: Before taking a call on this stock, I would like to view the next quarter results as there are two different things happening. On the overseas front, positively there is some build up in demand for Jaguar-Land Rover (JLR). On the other hand, the domestic conditions are still very weak. Tata Motors is witnessing some negative growth month-on-month in their main segment which is heavy commercial vehicle (HCV) segment. It is too early to jump to a conclusion as there is still lot of risk involved in buying this stock.    

Q: What is your view on Kishore Biyani's comment? How would you approach this deal now?

A: This deal makes good sense for the Pantaloons Group. When things were good and had big growth, he invested very heavily in non-core businesses. Kishore Biyani entered into broking, NBFCs and insurance but when his core business started showing some blips, he is forced to sell other business. I think he is making a very sensible move as cash flows will come back in Pantaloon. I think for the next two years, there will be trend that businesses will strip their assets and become lean and hungry, whereby both company and investors will be better off.