In an interview to CNBC-TV18, Daljeet Kohli, India-Nivesh Securities spoke about different sectors and his favourite picks.
Below is the verbatim transcript of his interview on the channel
Q: Let us start with Cadila Helathcare as pharma stocks are doing so well, why do you like Cadila?
A: Cadila stock has actually been de-rated in the last two years. There were definite fundamental reasons for that de-rating because the company’s margins had come down from 21 percent to almost 16.5 percent, mainly because of domestic pricing policy last year and before that their Moraiya facility was under problems with the US FDA. So, they did not get approvals in time and therefore, the margins kept coming down. Also, they acquired a company called Biochem which also resulted in lower margins for the company.
Now, why we have turned bullish just after this quarter numbers is purely because these reasons have turned around for them that now the domestic business has stablised perhaps the last quarter was the worst quarter. Some impact of this new pricing policy will be negative in this quarter also but that has stabilised now. From here on, the company will start getting uptick in domestic margins.
On the international front, they have filed around 190 filings with US FDA, 80 are approved rest are unapproved. Again, because now Moraiya is out of this US FDA problem they are likely to get more approvals in next two to six months. This is a story for another 1-1.5 year where we will see company going back to the normal trajectory of 20 plus margins and that will result in re-rating of the stock.
Currently, the stock is trading at a very cheap valuation of almost 16 times of FY15 whereas it used to trade around 18-20 times. If we see that trajectory coming back, I am sure their valuation will also come back on that line and therefore, the stock will have a huge upside potential from here. Currently, we are giving a target of Rs 913 and over the period, as things progress, this will move upwards as well.Q: I will next go to the financial or the NBFC space; LIC Housing Finance, how would you rate that stock?
A: LIC Housing Finance is a slightly contrarian pick within the NBFC space because whenever I talk about this to all their clients, the first question that comes is that this company does not have any source of funding which is cheap. They are actually dependent on market borrowings and there is so much of volatility there and so, how will they maintain their margins. This is not the first time they are going through this phase. They have been here for a very long time. They have a very strong pedigree, they have LIC backing and so, all those issues can be tackled.
Why I am bullish on this stock is that there is a big trigger point. They are one of the strong contenders for bank licence. I don’t know whether they will get it or not but they are definitely one of the strong contenders. What does a bank licence do for them? For others who are in that list there are many ifs and buts and whether positives or negatives. For them, there is only one thing which is positive because that gives them an opening to the cheap source of funding and LIC has a lot of big float available.
Even if they get a very miniscule percentage of that, it will also come to them and will be a big advantage for them. So, the stock is right for a re-rating depending upon the newsflow. Even if that re-rating doesn’t happen, you are buying a housing finance company at 1.1-1.2 times of adjusted book value which by all standards is very cheap. So, it will remain inline for a very long time. There is no question on the fundamentals or the long-term growth of the company. Valuation is cheap and in your favour and so, you should be buying this stock. Q: Take us through your price levels and targets for Coromandel?
A: For Coromandel, the target is Rs 279. The basic trigger point here is that import parity price is now in favour of them because of rupee depreciation. So, it is good for domestic users to buy from them rather than import and they are benefiting from that. Also, monsoon is a beneficiary for them.
Q: Will monsoon also be a reason for United Phosphorus? What are the levels there?
A: For United Phosphorous the level is Rs 217; the first target and then it has a potential to go up. Monsoon is one reason but main reason for them is that they are so well diversified, they are available in 40 countries across the world and everywhere this time, they have the weather in favour of them and therefore, the demand is good for them everywhere.
Q: Your last two picks are Oil India and Aditya Birla (AB) Nuvo. Can you just take us through your targets on this and the timeframe?
A: For Oil India the target is Rs 672. This is a play on gas pricing. Around 10 percent comes for Oil India from gas and once the gas price goes up they are a very clear beneficiary of that which will lead to re-rating plus a good dividend yield company.
AB Nuvo is a store value of money. It is a play on all consumption themes; financials and retail as well as telecom. We are seeing a lot of things happening in all these three sectors. All of them benefit. Only problem with that is that they need to unlock this value. So, management has to do a lot there but there is a big potential there, Rs 1506 is the target in AB Nuvo.
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