Like Exide than Amara Raja; shun USL, Hindalco: Rajen Shah

In an interview to CNBC-TV18 Rajen Shah, chief information officer, Angel Broking shared outlook on stocks across various sectors. He is bullish on Exide vis a vis Amara Raja Batteries. Exide is likely to exit the insurance business bought from ING Vysya Life Insurance Co for about Rs 550-600 crore, which may be a trigger. The stock is currently trading at 20 times its earnings, he told CNBC-TV18.

However, he is bearish on United Spirits, Manappuram Finance and Hindalco. Also read: India may outperform; like capital goods, banks: JP Morgan Below is the edited transcript of Shah’s interview to CNBC-TV18.

Q: Over the last few months Amara Raja Batteries has been stealing a march over Exide Industries and closed valuation gap quite considerably but yesterday’s number seem to have disappointed a few people. How would you look at these two names now? A: Yes, the numbers were disappointing and we saw the stock taking a hit too. However, if one sees, both are looking very interesting. Amara Raja reported Rs 16.5 kind of earnings, so it is trading at about 15-16 times the earnings. However, Exide reported about Rs 6.5 of earnings almost. So, it is trading at 20 times. But I would go with Exide and the reason is that I am hopeful that in the coming 12-24 months, they could exit the insurance business which they bought for about Rs 550-600 crore from ING Vysya Life Insurance Co. It is also a debt free company. So that could probably be one of the triggers in Exide.

Additionally, the management has expressed optimism for the current year. So, though Amara Raja at 15 times looks better on a valuation basis, I would bet with Exide which is at 20 times. Q: The United Spirits open offer doesn’t seem to have yielded too much at all. How are you guys calling that stock and what would you advice people to do with it? A: If one sees internationally, Diageo should report about USD 20 billion of sales this year and the market cap is about USD 80 billion so it is trading at about four times. If one sees Pernod Ricard this year, they should end at about USD 12 billion of sales and the market cap is about USD 33 billion. So, it is trading at about around three times. If one sees United Spirits this year, they will be reporting about Rs 11,000 crore of top- line. Its market cap is approximately Rs 30,000 so it is around three times. Hence, it is a fairly valued stock but now, if Diageo makes an attempt to buy the shares from the market and take its stake up, then we could probably see a significant move in the stock. But otherwise, I would not be comfortable putting in my money into United Spirits at the current price of Rs 2300. _PAGEBREAK_ Q: For Manappuram Finance, last year was disastrous. What do you guys expect to see this time? A: I am not very positive on Manappuram. Muthoot Finance also announced disappointing numbers. When one looks at the EPS, one sees a Rs 27 EPS and the stock is quoting at about Rs 140 or so. So, it is trading at about five times. The company has an outstanding of Rs 26000 crore worth of gold loan and the total gold pledge is about 134 tonnes which works out around Rs 35000 crore of gold which is pledged with Muthoot Finance. We saw a 15 percent cut in gold prices. If something like that happens, I am very negative on gold because I am very sure that Italy could also be on the verge of bankruptcy and they hold about 2500 tonnes of gold. So, they may come to the market to sell and that could take the gold prices down. Hence, I am not bullish on these gold financing companies like Muthoot of Manappuram. Q: How would you approach Hindalco Industries now? A: I am not so bullish on Hindalco though it looks interesting because the stock has come down significantly. However, somehow I am not very comfortable with owning any of these commodity stocks whether it is Tata Steel, Hindalco or a JSW Group companies. I am not very comfortable owning these commodity stocks at all.