In an interview to CNBC-TV18, Prakash Diwan of Altamount Capital Management shared his readings and outlook on specific stocks and sectors.Below is the verbatim transcript of Prakash Diwan’s interview to Latha Venkatesh & Anuj Singhal. Anuj: First thing that we have to discuss is the auto stocks. Maruti Suzuki made life time high yesterday, backed by good numbers, but you have a bit of a contra view here?
A: My concern is that things are getting in priced into Maruti stock a bit too fast. There is no doubt. This was on the cards and there is huge inventory build up in most dealerships. If you do channel checks, you realise that in anticipation of the festive season, the stocking has started sometime early this month, the previous month in September and that is very clearly reflected in the numbers. However, the same thing is with Hero Motorcorp as well. If you see, lifetime sales of 6.2 lakh bikes in a month. It is in anticipation of the festive season exuberance.
So, when a stock reaches its peak because of what is expected, which is round the corner, if anything goes wrong in that, you will have fall from a cliff again. And Maruti is a stock unfortunately, which has been giving a lot of profits to a lot of investors, the kind of secular run it has shown. So, in case of any meltdown, any shake out in the market, it will probably be the first to be hit on the sell button. So, be careful with that, but you could buy into it at those dips because at Rs 5,600 it probably does not make sense to build in positions, but at lower levels, certainly you could accumulate that.
Latha: What did you make of the Tata Motors' Jaguar sales? You predicted that taste is shifting from Land Rover to Jaguar. So, that is what is happening.
A: The Land Rover thing is slightly softer in all markets including Europe, including US and the US numbers of course, the Jaguar numbers look optically remarkable because of the base effect. It is almost like 2.5-3 times on year-on-year (Y-o-Y) basis. But remember one thing, it is the pace that is carving out a huge market for itself and there are people who are coming in droves to test drive that and book the vehicle and all. So, the only concern with Tata Motors is going to be that unless it starts firing on certain other cylinders, you will probably not see the stock move up with the same force and remarkable pace that we saw in the last four months. So, I would be a bit cautious and that is why the markets are not rewarding it too amply even after these numbers because this is one leg that it is doing well on. But it needs to make sure India does well, China also continues to perform rest of the markets and rest of the world also pitches in. Right now it is positive, but I do not think it is enough to take the stock forward in a very major way.
Latha: Yesterday, I thought of you when Bharat Seats went up. There are a whole lot of auto ancillaries that are doing well. Is there, because this is such a midcap led rally, what are you looking at?
A: Auto ancillary, the one company that came up with some belated results from the auto space that is Sterling Tools. This is a company that makes cold forge fasteners. Again, a lot that goes into steering, suspensions, sterling tools is in the same genre as Sundram Fasteners would be. So, it is not like any different. You see the kind of remarkable improvement in numbers that it has clocked. So, we are talking about almost like a 50 percent growth in earnings before interest, taxes, depreciation and amortisation (EBITDA) in the quarter gone by and the sense is that people who are dependent on these large original equipment manufacturers (OEM) which are doing well, be it a Hero, be it a Maruti, they would start doing well as well. So, the correlation story is very much in place and it is a stock that people are slightly scared of because it is some Rs 760 or whatever, but you cannot take away from the fact that it is overvalued. From a price-earnings ratio (P/E) multiple basis, it is still available.
Latha: In fact it has doubled in the last three-four months.
A: Yes, it has, but like any other auto ancillary company. But this is slightly under-discovered if you ask me. You do not talk about it too often, but it would probably be in the new for the right reasons.Anuj: Something is turning for Anil Dhirubhai Ambani Group (ADAG) and especially their defence related plays. Reliance Infrastructure yesterday had a big rally. Reliance Capital has seen from Rs 400 to Rs 600 a big surge. Would you back any of these stocks?
A: Reliance Capital definitely has been never hammered the way some of the other stocks in the group has been because of the simple reason that it had underlying businesses which were fairly robust which were very clear and very visible on earnings. My sense with Reliance Defence and Engineering is that just because that space is still not populated enough with good names and too many names, people tend to rush into it every time there is a news flow that directs you to that.
Defence is a very clear three-pronged or three-phase kind of a story. First, you need to build capabilities; you need to have your expertise, the technology to build that up. Second, you need approvals and licences to do it and the third is the execution part. Now what Reliance Defence has done is it is saying okay, I have stepped into this business with Pipavav and I will probably start building capabilities. So, you are still at the ground floor level. It is not that it has reached mezzanine or first floor or wherever.
So, my sense is it is a bit too early to reward these companies with this exuberance but in the absence of any other good names, people tend to rush to these, but there are lots of other players who would benefit from this whole theme of Make in India for a lot of these defence projects, especially the marquee names because you do one Dassault, one Rafale, people come flocking to you from other corners of the world saying please get this done if you can do this.
However, the next stage you will see a lot of dilution in this company because they will have to get equity. Technology is one thing, but how do you scale up without getting the money. Reliance Capital, to answer Anuj’s question is definitely a good bet given the kind of space that is looking positive, but it is overvalued also according to me.
Latha: I want to ask on the new listing of HPL Electric & Power. Have you studied it at all?
A: When you were talking to the gentleman from NTPC and you referred to Ujwal DISCOM Assurance Yojana (UDAY), this is one area that has got slightly delayed in execution, but as an when that happens, you have this company that is definitely going to be one of the key beneficiaries. Incidentally, their add campaign talk about light-emitting diode (LED) lighting, that is a business which is just about 16 percent of their overall business but it is largely metering that they are into and that is going to be a big key change once, UDAY gets into implementation mode. So, you also add this small company called Genus Power Infrastructures which is in a similar kind of a business, but I probably find HPL slightly better-off one things look up. So once people go through all the numbers and understand what this business is all about, it will probably get rerated as well, beyond today’s listing, I mean.
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!
