In an interview to CNBC-TV18's Prashant Nair and Ekta Batra, Dilip Bhat, Joint MD of Prabhudas Lilladher shared his reading and outlook on the market and also gave recommendations on various stocks.
Below is the verbatim transcript of the interview.
Prashant: I have your top bets here, Larsen and Toubro (L&T) is something that you like. It has gone up like a rocket over the last couple of days. Last ten days or so, now it is consolidating a bit, results are coming on 26th, there is huge expectation that this is AM Naik’s last quarter and results are going to be great, they cannot do anything about orders but on the rest of the profit and loss (P&L), numbers will be very good. Is that the basic trigger, the reason behind the rally?
A: Just to put that in perspective, L&T has underperformed in the last one to one and a half years barring for the last month to month and a half or so. So it has picked up in the last one and a half to two months itself. Maybe in the last couple of days, it has spiked up quite a bit.
However, our broader call still is that as we approach 2019, it is government orders which will be a big trigger for L&T and for the entire infrastructure sector. That is where we think L&T finally playing a very prominent role in that.
As the execution picks up, L&T possibly will come back on its own from a rather muted growth to on an accelerated mode is what we think. More importantly, we will also see a good improvement in the order intakes in the coming months, which will also be a good driver but the key point, which will be very closely watched is their working capital, which was around 23-24 percent of the sales, whether there is going to be some respite in that and that also will be a good trigger. In our opinion that also should provide a good support.
So L&T looks pretty interesting. I am not so talking about the short-term results the impending Q4 results but slightly on a longer-term even the change of this management also will bode well because a younger member is going to come on the board and he probably have much more longer time ahead for him. So all in all that looks pretty interesting.
Ekta: What is your sense in the telecom space, it is tough to choose a winner now?
A: I think we are still talking about absolutely a price war which is in the offing and the data which was supposed to be the main source of revenue and profitability probably that attraction too has got a lot significantly diluted after the entry of Jio. With this price war intensifying and more important I think the capital intensity of the business continues to be up and unabated. More important when we talk about the 5G is also going to come I think there is going to be still a significant capex that will have to be made. It is very difficult to pick out any winner out over there. I would still prefer to stay on the sides rather than try to play some of this. Maybe there will be some small momentum upside, but slightly on a longer term basis, I would prefer some more clarity before committing to this sector.
Prashant: I know you have a couple of other stocks and I am going to come to those as well, but staying with this the capital goods theme Larsen & Toubro (L&T) in that same line two other names one is Thermax I don't know if you have coverage, but a company like Thermax now trading at 35 times FY19 earnings and the other is Havells, it has had a phenomenal move, that is now trading at 43 time FY19 earnings. What do you make of these valuations?
A: Some of the valuations and the valuations which you are mentioning I think that seems to be plaguing a most of the frontline and the prominent names and that is where the real challenge for the market is that all the known and the names which you like are already trading at a very exorbitant valuations and that reflects a lot of optimism. But, I wouldn't be in a hurry to commit as far as Thermax is concerned. Maybe they have something good going for them at the moment but I don't think it is very adequately getting reflected either in their turnover or even in their order book position so maybe the traction is gradually going to improve. So, at the current levels I would not be in a hurry to buy that.
Similarly I think Havells is more of an fast moving consumer goods (FMCG) play that we are talking about and I think the segment in which they will continue to grow at a good levels but at these valuations yes I would not be a keen buyer too.
For full interview, watch accompanying video...
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