ITC set to correct; buy Tata Motors, HDFC: Mehraboon Irani

Mehraboon Irani, Nirmal Bang Securities, is positive on Tata Motors, Lovable Lingerie, Motherson Sumi and Bayer Crop Science. Irani feels one should not look at Tata Motors’ domestic play, but instead focus on Jaguar Land Rover. JLR plans to launch a slew of models and enter new markets.

He is willing to look into the FMCG sector but only on correction. He sees the possibility of a correction in ITC. He told CNBC-TV18, even at Rs 50 higher, he would advise buying HDFC. Also Read: Mkt in doldrums, but Ambit Cap says to make money buy now Below is the verbatim transcript of Mehraboon Irani’s interview on CNBC-TV18 Q: It has been a very poor results season so far, but if you had to recommend any stocks that you would advice buying now on the back of good set of numbers is there anything that you can find?
A: Front-line is something which interests us. The company that we are looking at going ahead is Tata Motors and I think that there would be mixed opinions before people post the numbers, because domestic performance is something which I have been going on stating is not something which you should be looking at. The company is going to take measures. One can remain assured on that as far as the domestic performance goes, because that is going to remain muted. It is going to affect the consolidated numbers also.
However, if you look at Jaguar Land Rover (JLR) and look at the slew of models, the new markets which the company is going to enter, the July numbers whatever one can see in various markets which is downloaded on the new regencies as of now shows that things at JLR are continuing to remain robust and with the new models going to be launched, new markets the company is going to enter just because of JLR one can remain positive on Tata Motors on a consolidated basis.
In midcaps, we like names like Lovable Lingerie results of which we find to be very good. Motherson Sumi, a company which is more or less an international company is the best bet in the auto ancillary segment, Bayer Crop Science looks good and I think what we are taking into weightage right now is the fact that we are not looking at companies which are heavily overleveraged or do not have a decent cash flow.
So we are looking at companies of that type because right now in this market in the sentiment in which we are, the investment cycle not kicking off, midcaps have become a dirty name. Recommending midcaps would require a lot of courage. So we are looking at simple parameters right now and identified these three companies besides Tata Motors among the front-line names. Q: Some of the real blue chip names like ITC and Housing Development Finance Corporation (HDFC) have corrected a lot, around 15-16 percent over the last 10 days. Would you buy any of these two names or do you think they will correct more?
A: I would definitely look at Fast Moving Consumer Goods (FMCG) on correction, but ITC and Hindustan Unilever (HUL) are the two heroes which had become a little bit heavily over-owned. Some more correction is definitely possible in ITC. I think HDFC is certainly a yes. Stock is possibly worth looking at. Honestly if you had ask me this question maybe at Rs 50 higher in the present place I would have said go ahead and buy HDFC. The Reserve Bank (RBI) measures is taking its toll on all companies which are in financial services irrespective of whether it is housing finance, non-banking financial companies (NBFC) or private banks. Sentiment-wise it has got affected. Yesterday happened as far as Morgan Stanley weightage goes, also took a toll on the sentiment towards HDFC and HDFC Bank. Is this correction to be used an opportunity, certainly yes from the longer term, in the shorter term I am still not ruling out further 3-4 percent fall. Q: Do you track Apollo Tyres? The numbers which came out yesterday looked good, but the stock was still down about 4 percent.
A: Yes, I track Apollo Tyres as well as MRF. Apollo Tyres is a stock which we liked at around Rs 80-85 levels and it has come down to Rs 60 because the market has taken acquisition of Cooper Tire very negatively. I remember when Santos was going in for Taro or when Tata Steel went in for an acquisition of Corus or Tata Motors went in for JLR, the market takes all sorts of big acquisition in a negative way, because the market is not liking anything which is going to stay in the balance sheet.
At Rs 60-62 an opportunity for the longer term, certainly yes. As far as numbers go, the markets should have been enthused by the numbers. That is a big question. Why the market reacted negatively post numbers, it is mainly because the market is still having an overhang as far as the Copper Tire acquisition goes. As far as margins in the European operations go they were muted, something which the market never liked and the impact on the bottom-line was mainly because of the fall in rubber prices. Domestic rubber prices have gone up.
In international market, rubber prices are lower, but because of rupee depreciation the benefit because of the difference in the imported versus domestic price is not going to be as big as what it was maybe a couple of months ago. That is what the market is not too much enthused about. So on the whole the numbers look interesting, but I do not think too much is going to happen to the stock in the short run, because the overhang of Cooper Tire acquisition is going to remain for sometime to come. Q: Are you expecting a deeper cut in front-line IT names like Tata Consultancy Services (TCS) and HCL Tech which corrected yesterday because of the sheer magnitude of the run that they have had?
A: Yes, distinctly possible. The unfortunate part in this market is the opportunities are just not cropping up elsewhere. It is only IT. Pharma if one looks at the growth in the top-line, one needs to be a little bit cautious on that particular front. FMCG is overdone, correction is due. So will IT react further is honestly a very difficult call, but yes in absolute valuation terms it is quite expensive. Relative valuation I would use the word rich. So one should be buying into it at the present level.
If you want to protect your money ultimately it will remain protected, but over a period of time, over 3-4 quarters if and when the investment cycle turns these are the type of stocks which you need to exit and possibly go into cyclicals. The problem is the time for cyclicals has still not come. So IT may possibly remain at the present levels or move in a narrow range from here onwards.