Here are some stock trading ideas from Rahul Arora

In an interview to CNBC-TV18 Rahul Arora, CEO of Nirmal Bang Institutional Equities shared his reading and outlook on the market as well as on stocks and sectors.Below is the verbatim transcript of Rahul Arora’s interview to Prashant Nair & Ekta Batra on CNBC-TV18.Prashant: Let us just dive straight into couple of stocks that you have coverage on and you like Manappuram Finance is one of them, has had a huge run up, what is you view?A: You are right, it has almost tripled in the last one year or so but the results were very good. On all parameters on the net interest income (NII), on the operating profit on the net profit the numbers were anywhere between 25 and 55 percent higher than our estimates.The interesting part is despite the stock doing what it is, it just about coming to you at 2 times price to adjusted book on FY18. For a company that we think can expand its return on equities (ROEs) by another 400 to 500 basis points between now and FY18 and grow its return on assets (ROAs) by about 70-80 basis points. That is not a bad place to be.We have just upgraded our target about a Rs 130. We think that the non gold part of the lending will fall down to about 50 percent in the next two years which means he is going to be doing a lot in LAP, which is loan against property, commercial vehicle, home financing and things like that which are very profitable.Prashant: Everybody wants a piece of LAP?A: Absolutely, look at Capital First it is predominantly a LAP player and it is up by about 85-90 percent.Prashant: Indiabulls Housing Finance for example.A: Unfortunately we don’t have coverage on that but Capital First we do so that is an interesting piece.Prashant: You think it should trade at 2 times but the book value will increase?A: I believe so and there are multiple factors. It is just not the book value, it is the operating metrics of the company the cost to asset under management (AUM), the cost of funds, the net interest margin (NIMs). We are expecting the net interest margins to inch up by another 150-200 basis points from where it already is and that itself has been a remarkable improvement. In this quarter they grew their NIMs by3 basis points. So, its cost coming under control, deleveraging of the gold portfolio, which is anyway doing well for them, a very fast growing area as you mentioned and coming to you at fairly decent valuations with compelling return ratios.Ekta: The other stock, which you track very closely Colgate -- 55 percent market share continues in toothpaste, any threat at all?A: My mind goes back to when we actually initiated on Colgate at Rs 1,250 pre bonus and we were one of the two or three people who had a buy report on it and it went to a Rs 2,250. I keep saying that there are only two companies that I would never sell a stock of one is Colgate and the other is Procter & Gamble (P&G) because I think these are the only two companies that have been compounded themselves steadily year after year. I am not disputing the Patanjali threat. It is evident in the new launch that they have done and the advertising and promotions (A&P) spends as the percentage of sales.My limited point which I have been making for years now on Colgate is with P&G also trying to dent the market share with a very marketable face of Madhuri Dixit they were only able to get to as far as 30 basis points. There is 40 percent of the market for other players to take away. Colgate doesn’t have to lose market share for Patanjali to gain market share. Hindustan Unilever is a very weak player over there.There are others like Vicco Laboratories, Dabur etc. I think the good part about Colgate is its financial profile is very strong. There are few companies in India that will give you 70 percent ROEs and return on capital (ROCs), 2.5 percent dividend yield. You look at Colgate if he can grow you at about 4 to 5 percent volume growth, give you 3-4 percent premiumisation with the 3-4 percent price increase that is a 10 percent growth I am looking at compounded for years on end.I don’t look at valuations on Colgate unfortunately. It is the first time we have valued Colgate at 40x. Some of our clients were a little sceptical about that but I say if you can value Nestle and GSK Consumer who are going through troubled times at 35-36 times then you can definitely value a franchise like Colgate.If you speak to the Colgate management about 65-70 percent of India doesn’t even brush twice a day. I don’t need more people to come brush. Just one small point, which viewers and specially retails should understand is Colgate does work in 25,000 villages with one dentist per village; that is a huge entry barrier. Similarly like P&G they catch girls just before they enter the cycle. The point I am try to make is when you catch the consumer at the point of entry, the loyalty is huge.