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Last Updated : Jun 08, 2016 01:24 PM IST | Source: CNBC-TV18

Here are Daljeet Singh Kohli's top trading ideas

Watch the interview of Daljeet Singh Kohli of India Nivesh Securites with Reema Tendulkar & Anuj Singhal on CNBC-TV18, in which he shared his readings and outlook on market and specific stocks.

Watch the interview of Daljeet Singh Kohli of India Nivesh Securites with Reema Tendulkar & Anuj Singhal on CNBC-TV18, in which he shared his readings and outlook on market and specific stocks.

Below is the verbatim transcript of Daljeet Singh Kohli’s interview with Reema Tendulkar & Anuj Singhal on CNBC-TV18.

Anuj: Atul Auto, it is a stock which went through a problem. The company went through a problem of course last quarter’s but you have a buy recommendation on this one?

A: The problem was basically not anything specific to the company. It was related to a tax issue like government of Gujarat had put in some issue that the dealer was supposed to pass on VAT at 15 percent but the company was supposed to charge 20 percent. So, obviously, the dealers were not stocking the vehicles because they will have to pay 5 percent from their pocket. Now this issue is resolved, so in April normally the run rate of vehicles is around 2,500 to 3,000 per month. Now that had gone down to 1,200, but in May itself it has come back to 2,200 odd or so.

We feel that this issue being resolved now they will go back to their normal run rate of 3,000 odd vehicles a month. Plus the trigger point for future is they have launched one petrol variant and CNG variant which will cater to the domestic city or urban demand. Then because we all know that rural area was under distress for last two to three years now that it is likely to come back into shape. So, then again the demand from rural area will also pick up. We are expecting that this 30,000-35,000 vehicles in year may go up to around 45,000-50,000. The company has also plans for setting up another plant for 60,000 vehicles which will come up in FY18.

Atul Auto has a good trajectory ahead where there is enough triggers to play out. Stock is also fairly valued it is around 18 times FY18. We have a target of Rs 550 or 540 on the stock which is not very big target. However, I think with the numbers coming in and with any green shorts coming from rural areas this target can be revised upwards.

Reema: Generally non banking finance companies (NBFCs) have done well whether it is gold NBFCs like Manappuram Finance, Muthoot Finance or even the auto ones like Shriram Transport Finance but housing finance companies have actually lagged when you compare the gains to these other two sectors. In that you are picking a GIC Housing Finance why is that and what is the kind of upside that you see in GIC because the fear is there is increased competition coming through in to the home market?

A: One good reason for picking a housing finance versus other finance companies is that in the last two to three months there has been a shift to other sectors and housing finance has lagged. That will ultimately pick up because there is a very clear demand for housing finance. We all know that how underpenetrated this market is. The other reason to pick GIC Housing amongst others is when we started GIC Housing, the valuation gap between GIC Housing and other listed housing finance players barring HDFC was around 50 percent. In last two months that gap has narrowed down to 30 percent.

We believe that this gap can further narrow down because GIC Housing is also growing at the similar rate at the same way than the other housing finance companies like DHFL or Repco Home Finance or Gruh Finance are all doing. They are all trading at a high price to earnings (PE) or price to book value multiple whereas this company was trading at a lower multiple because of PSU tag. So, this thesis has played out well in last two months. We believe that there is further more scope purely because the return ratios of GIS Housing are actually better than all these listed players so in terms of return on equity (ROE), return on asset (ROA), asset quality every where they score better.

Growth is also picking up; 20-25 percent growth which is normal run rate for all housing finance companies that GIC is also doing. The idea is that this valuation gap will narrow down and therefore even now at around Rs 270, GIC is trading at less than 2-1.8 times of book value. Whereas others are all trading at around 3 times, so even if we say 2 times of book value it will be Rs 330 which will again give you more than 10 percent returns from here also. So, we believe that GIC Housing is a good investment bet at this time purely because of valuation.

Anuj: Midcap private sector banks have started to do well and you like City Union Bank?

A: Now the reason for choosing City Union Bank was that they have a very granular loan book which means that they don’t have too much of exposure on one particular sector or one particular region. We actually went into detail working of their loan book and we found that in most of the cases they are financing small and medium-sized enterprises (SMEs) and micro, small and medium enterprises (MSME). 60 or 70 percent of the cases they are the sole supplier of funds which means that they have full control on the company and they are aware of what is happening.

Second thing is that they are totally concentrated on Tamil Nadu, so they have the local understanding of the business, local understanding of the promoters, so that gives them a very comfort in terms of asset quality maintenance. That is what we have seen in last two and one and a half years when all other banks were facing so much of challenges on asset quality, City Union Bank actually maintained its asset quality and did not see any major problem.

They tactically moved away from corporate finance to these smaller companies because large corporate were giving problems in terms of asset quality. Whereas these smaller ones were much better plays. I think that is what has played and again here also valuation comfort is there around 1.5 times to 1.6 times of FY18 adjusted book value which is much lesser than its comparative peers like Karur Vysya Bank or Federal Bank, so obviously it make sense to look at City Union Bank.    

Reema: Two power stocks for you Kalpataru Power and Tata Power?

A: Tata Power has come out of its consolidation zone for almost last six-seven years. It has not performed there mainly because one or the other problem was coming. Either their coal was not doing well or there was so much of translational losses coming in. They were going through all the problems and on top of that this Mundra Power plant which is giving them a problem because of the pass through of that extra coal charges.

Now in the last three-four months what has happened positive for them is that one APTEL has given a ruling which is in their favour that force majeure clause will be applicable, so they can take the advantage of increase in the prices of coal. Of course that has yet not become applicable but to an extent it is clear that they will get the advantage if that happens that will add around Rs 18 to the book value of Tata Power.

Currently, Tata Power is trading at around 1 time book value which is very cheap for any kind of utility. We feel that there is one big trigger point that is coming and second it is all said and done it is the largest private sector producer of power where all other subsidiaries are doing very well in terms of PLFs in terms of making profits, now the numbers are coming. So, we feel that in next one year these numbers will start coming in and Tata Power should perform from here onwards.

On Kalpataru Power, that is an extension of our theme that transmission would be the next area where we will have lot more focus coming in. Generation has already been done in last five years but transmission has remained in under invested area. So, a huge amount of investment has to come in this region and Kalpataru being a big competitor in that field it can take the advantage of that. Power Grid Corporation of India (PGCIL) is one of their bigger customers which give them lot of orders.

We have seen that in last quarter numbers also they have seen good numbers coming from PGCIL, also railways is adding to that. Then margins are coming back to the historical average of 10.5 percent. Management has also guided that they will continue with this kind of margins. Kalpataru Power again is a play on power sector reforms and transmission being one big area there.  

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First Published on Jun 8, 2016 12:44 pm
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