Upbeat on L&T, Crompton; Jet Air long-term bet: Rajen Shah
Rajen Shah is positive on L&T, Crompton Greaves, Jet Airways, but advises investors to stay away from commodity related stocks like Tata Steel.
Rajen Shah, CIO, Angel Broking is bullish on infra stocks like Larsen and Toubro (L&T), Crompton Greaves and Voltas. He sees a 25 percent upside in Crompton from current levels.
Also Read: Nifty to fall further; sell in May and go away: SukhaniFrom the aviation space, he expects Jet Airways to turnaround going ahead given that the management sees improvement in load factor and better pricing ahead. According to him, Jet is long term play.Wockhardt, which will announce its numbers today, may see modest upside from current level since in the stock worst seems to be over for the company now.
Meanwhile, Shah expects Tata Steel to post somewhere around Rs 2,800 crore of net profit. He feels commodities will underperform for at least next six to nine months. "We could see a modest upside in Tata Steel, but not major" he says in an interview to CNBC-TV18.Below is the verbatim transcript of Rajen Shah's interview on CNBC-TV18Q: What kind of response are you expecting from Crompton Greaves today? It seemed like another very disappointing quarter.A: Yes, it has been a disappointing quarter. International business continues to reel under heavy losses. It made almost Rs 480 crore of loss, so it is certainly a disappointing set of numbers. We are positive on the infra space, whether it is Larsen and Toubro (L&T), Crompton Greaves or Voltas. Over the next six months a number of steps will be taken. The Finance Minister has gone on record saying that over the next six months expect a lot of reforms. I also see a number of projects which were stalled, getting activated in coming 6-9 months before the elections; the government would try hard to turnaround the economy. So, infra has been beaten too much, whether it is Voltas, Crompton or L&T. Despite very challenging period for the Indian economy last year, L&T still reported a modest growth. Most of them are seeing it as a negative set of numbers, but the worst is almost in the pricing. In Crompton at least we are expecting about 25 percent upside. Last year, in May everybody was negative on RComm and we had recommended that stock in the multibaggers show at Rs 70. It came down to Rs 55 only to bounce back to Rs 120. So we are positive on the infra space and we believe that it is time to load up.Q: Disappointing numbers from both Jet Airways and SpiceJet. How would you approach those two stocks?A: Rs 19,000 crore of revenue which was about 10 percent up in case of Jet and heavy losses of Rs 780 crore, but that includes exceptional item of about Rs 310 crore. The loss is about Rs 470 crore. But we expect Jet to turnaround and post a net profit for the current year, the reason being that Rs 2,000 crore which would go from the sale of stake to Etihad would go towards retirement of debt, plus they will be get Rs 1,500 crore at a much lower interest rate. That should bring down the interest costs significantly in the current year.
We expect a turnaround, because the outlook that the management has projected, they are expecting improved load factor and also the pricing power to comeback in the current year. This is not the stock you need to buy for one year or so. This is a long-term story. Last year, about 6.5-7 crore people flew and over the next 10 years I expect about 25 crore people flying.
In a country of 120 crore population, 7 crore people flying is too less, so I am expecting at least 12 percent growth in the aviation industry over the next 10 years and at market cap of less than USD 1 billion certainly Jet is a long-term play. So we are positive. I do not expect any fireworks in the coming months, but it is a long-term story.Q: Wockhardt is reporting numbers today and that stock went through quite a bit of pressure last week. Do you think it has seen the worst and what do you expect to see in the numbers?A: The worst is over in case of Wockhardt. The stock went up almost 700 -800 percent from a low of Rs 250 sometime in December 2011 to almost a high of over Rs 2,000. Normally such rises are followed by correction and US Food and Drugs Administration (USFDA) became a reason for that correction. At this level, it is trading at just about 10 times the current year earnings. So nothing much to lose from the current levels, but there could be a modest upside.Q: One pocket of stocks that did okay was the entire UB Group including United Spirits. Any thoughts on those stocks and how would you play them now?A: It is richly priced. I would not dabble in that at this point of time at Rs 2,500. The one stock in the UB Group which we like and can give a 50 percent upside over the next 12 months is Mangalore Chemicals. We could see a change in management in Mangalore Chemicals. It is trading at about Rs 41 which is hardly about 6.5 times the earnings and there we could see some good action in the coming 12 months.Q: Would you buy Tata Steel now?A: This year we are expecting Tata Steel to post somewhere around Rs 2,800 crore of net profit. Last year we saw a huge loss because of impairment of assets. It would be about Rs 28-30 kind of earnings. It looks fine at 10-11 times. We could see moderate upside in the Tata Steel stock. Commodities will be underperforming for a while, at least for the next six to nine months. We could see a modest upside in Tata Steel, but not major. So I would remain on the fence. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
