PLilladher stock bets this Q1 earnings season

In an interview to CNBC-TV18, Dilip Bhat of Prabhudas Lilladher said that there is a lot of apprehension in the market because of the uncertainty in the market surrounding the oil and gas space.

Other issues such as rupee depreciation and global factors too plague the market. He fears that sooner or later markets may give in and become more vulnerable, Despite all this, he is bullish on Reliance and is betting on the company's retail ambition. Another stock that Bhat is positive on is GAIL, but only at lower prices and as a long-term bet.
In the banking space, he feels though PSUs look cheaper, but private sector banks would be a better place to park funds. He is positive on IndusInd Bank, YES Bank and HDFC Bank. Among PSU banks, the only bank that he thinks will do well amid domestic and global uncertainty is UCO Bank.
Bhat says despite the Educomp stock trading up for second day in a row, he is still not sure about the stock. He further elaborates, “The very fact that these kind of companies have to resort to such huge borrowings makes us very uncomfortable as to why they should have this kind of borrowings." He would prefer to focus on something like MT Educare instead.
He is also pretty upbeat about Infosys and says nobody should look at the stock from a single (current) quarter point of view, considering that the change of management has just happened.
The other stocks that Bhat is bullish on are Larsen and Turbo, Bajaj Auto. But he recommends buying Bajaj Auto only after it falls another Rs 50-70. In the midcap space, he is positive on KSB Pump, United Phosphorus and Tata Chemicals. Also Read: FinMin wants RIL to supply outstanding gas at old rate Below is the verbatim transcript of Dilip Bhat’s interview on CNBC-TV18 Q: What are your thoughts on how you are approaching the entire oil and gas space? We are getting some news now that the Finance Ministry might look at calling for a ceiling price in the new gas price formula. What would this do to the earlier earnings estimates that many analysts had forecasted for a company like Reliance Industries (RIL) and how would you approach the stock?
A: I think this is what is typical of policy announcements that they do some announcements and then there are so many caveats that come and you are back to square one and more so you are very uncertain. So I am sure that all the calculations that my analysts and a lot of other analysts have done will probably take a backseat now and probably will have to approach fresh, but surely more than that it is a question of uncertainty and an uncertain phase that we are talking about which is what is going to be a lot more apprehensive.
Taking that as a background I would still prefer to play Reliance in the oil and gas pack. I still think that Reliance is not just going to be a simple gas story. Of course the gas is going to drive the major cash flows, but it is also its retail ambition which one should not forget. I would play Reliance for it. I think on a longer term basis that looks good. Maybe Gas Authority of India (GAIL) is something which I would look at lower prices as a long-term bet. But otherwise I would really prefer to wait and watch. Q: What would your approach then be towards the markets at least for the rest of the month considering that now earning season has kicked-off and not to mention that we have the Reserve Bank of India (RBI) policy at the end of the month?
A: The uncertain phase about the gas policy also broadly represents the uncertainty the market faces at the moment. So there are host of issues, which markets have to contend with, the falling rupee and the way the breadth is behaving and that pushes or further ties down Reserve Bank of India’s (RBI) hand in terms of any deeper correction in the interest rates.
Against a backdrop of that you have measures announced by the government which if implemented in the proper spirit can bring about a good multiplier impact on the economy on the positive side. There are host of complex international factors.
Taking all that into account and a lack of secular support from the foreign institutional investors (FIIs), markets probably will continue to behave like this in a very volatile and uncertain manner and it must be said that despite the lack of FII support, markets have held on pretty well but my only fear is that sooner or later, markets may give in and may become more vulnerable. This uncertain phase is going to continue and it is still going to be a pick and choose market rather than have a broad market approach. Q: What would your approach now be towards the banking space? IndusInd Bank came out with a steady set of numbers but there is a lot of volatility that we have seen in general towards banking stocks, especially PSU banks. What would your approach be especially now with the onset of earnings season?
A: I think the preference would still be towards the private sector despite the fact that the PSUs have taken it on the chin in terms of valuations and their valuations appear very attractive because most of them are available at around 0.6-0.7 of the adjusted book. So I think that will always remain a dilemma that PSUs look cheaper, but private sector banks would still be a better place to park your investments amidst the uncertainty and the fact that this is a very volatile market. It would still be better to go behind something like an IndusInd Bank or a Yes Bank and try to invest maybe even in HDFC Bank at the moment rather than play around with the general. In the PSU segment there is one bank which I will talk about is UCO Bank. That appears to be on a firm wicket and overall macro environment really supports them at the moment. Q: Would you have a call on Educomp in particular? That stock is currently up for the second day in a row. Understandably it is down 70 percent on a YTD basis, but do you think that its fortunes can turn possibly on the back of restructuring of loans, etc.?
A: I have not really analysed this company in detail, but the very fact that these kind of companies have to resort to such huge borrowings makes us very uncomfortable as to why they should have this kind of borrowings. Against that background, I do not know there could be some relief here and there, but on a sustainable basis does it change the character of the business, I am not too sure on that. So taking that into account I would still leave this company out of my investment product and I would rather focus on something like an MT Educare, which is there in the education space where 30-40 percent of the balance sheet is in cash and I would really look at some of those companies. Q: What is the expectation from Infosys this time around? Last time's 20 percent knock on the stock still gives people so much heartache. Would you expect any shock this time around as well?
A: I think if the Call and the Put rates are any indication I think they are expecting some kind of volatility again to happen once the results are out. Broadly it is to be expected that it is going to be volatile once they announce some kind of results, but our analysis shows that something like a 2 percent volume growth, maybe 1.5-2 percent of revenue growth and maybe flattish to a slightly negative bottom-line growth for this particular quarter and maybe around 7-10 percent bottom-line growth for the full year. Infosys should certainly not be looked at from this one quarter's stock, because the change of management has just happened and I think one must give them couple of quarters where we are pretty upbeat and I think in the longer term whatever may happen in the next maybe one week or so the longer term still appears to be good. So even if it falls, I think I would still be a buyer in Infosys. Q: Today we saw IndusInd bank numbers which were quite stable – 40 percent growth in the top-line, 40 percent in the bottom-line, but that was expected in any case. Do you have any pre-result buys or sells that you would advice at this point either from the frontliners or from the midcaps?
A: We generally avoid talking about buying on pre-quarterly basis because our view is for about 3-4 quarters, but still on a broad basis on a front line company I would still go on Larsen and Turbo. With the kind of orders or the kind of announcement which the government has made, L&T has the best balance sheet to capture some of these opportunities. Possibly our calculation is that they will still generate some amount of free cash and probably this quarterly results should be somewhat better than what they did in the fourth quarter. That is a stock which we will look at buying even at the current levels or maybe at a dip.
In frontline we would still go for Infosys. Infosys is still a stock to bet on. I would look at something like Bajaj Auto on a lower side – slightly maybe another Rs 50-70 down Bajaj Auto also would look pretty good to buy.
In the midcap space, it would still be like KSB Pump or United Phosphorus which appears to be good or Tata Chemicals which appears to be a lot more defensive from the current levels. So those would be the broad picks across the sectors that are based on our analysis that we recommend.