In an interview to CNBC-TV18, G Chokkalingam, Founder & Managing Director at Equinomics Research & Advisory, shared his readings and outlook on the market, specific stocks and sectors.
Below are a few stock recommendations of G Chokkalingam:
According to me, this is the best defensive play. It is into ship building and repairing. Very interestingly, in the last 10 years the whole industry has gone through tough time, this company has grown itself, topline by CAGR of 11 percent. Strong balance sheet, cash is around Rs 1,600 crore which is 22 percent of the market cap and repairing segment accounts for more than 25 percent of the total turnover which is highly profitable. This segment has grown by 100 percent in the last three year itself and now it is going for expansion.
Also, it is a thematic play; in my view, many major countries are sitting on the bomb which will act as a war deterrent. So, I am more bullish on the companies which are making defence ships because if you look at last 10 years in Indian Ocean, the monitoring has increased tremendously by many major countries in the ocean. So, there would be more and more demand for naval ships for monitoring and this supplies naval ships. Government orders account for 85-90 percent of the total business of the company. So, all this points augur very well and therefore I remain very bullish on Cochin Shipyard.
I initiated long ago less than Rs 500, now it has run up. Of course the whole market has vertically shifted, still I find a lot of opportunity in this stock because on one year forward earning it is trading at 7-8 P/E in my estimate. This is one of the Birla Group companies, strong balance sheet. What I like this company is continuous expansion and modernisation and because of the continuous modernisation, the spindleage out of total capacity is 60 percent of the total capacity is less than 10 year old which is a very interesting barometer for assessing the modernisation of textile companies.
Second, the net block has gone up by 100 percent in last four years. They have been expanding continuously. In the first quarter, they setup a plant in Rajasthan which is expected to be stablised in the second quarter. Next financial year they are setting up another plant in Himachal Pradesh for making industrial yarns. This company is engaged in a lot of value added yarns and fabrics and that is another interesting point. It exports to 60 countries; the exports account for one fourth of the sales.
More interestingly, they have got into home textiles recently which accounts for only 5 percent of the total turnover but the management has a vision to increase to 25 percent. As and when that happens, there would be rerating for the stock also. Since inception it has been paying good dividend. I am expecting more than Rs 120 EPS for FY19, so, if I multiply by Rs 10 also, it can give easily 30 percent upside. However, if they succeed in the home textile segment in increasing the contribution, anywhere 25-40 percent, then the rerating can happen. Then it can become a multi-bagger. So, therefore I recommend strongly Sutlej Textiles.
Last four to five years I have been constantly focusing on mid-sized IT companies who have been lucky enough to succeed in finding multi-bagger opportunity in Hexaware, Polaris, Mphasis, Sasken. Out of these four, three have already seen the consolidation. So, this is what I have been saying for last three to four years that the consolidation in the mid-sized IT firm would continue because the largecap companies are not able to grow their topline, even in rupee terms in double digit. In the recent two quarters, they have grown the revenues even in rupee terms for single digit.
So therefore, I believe, I may be wrong, but I strongly believe that the next phase of consolidation should involve the Indian companies. So far large foreign companies have been acquiring, so, the consolidation process already has started and therefore I see tremendous opportunity for rerating of P/E multiple for the mid-sized IT companies like L&T Infotech which is having a strong balance sheet like any other IT company with net cash.
More interestingly, L&T itself has been divesting a lot of unrelated businesses, focusing more on capital goods segment. The stock also trades at around 10-11 P/E, so, even if rerating happens to 200 basis points, the stock can give a decent return and also consider it a very safe stock to invest at this market condition. So, therefore I recommend L&T Infotech.
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