ITC looks promising within FMCG space, says Deven Choksey

In an interview to CNBC-TV18, Deven Choksey, MD of KRChoksey Investment Managers shared his readings and outlook on specific stocks and sectors.

Below is the verbatim transcript of Deven Choksey's interview to Latha Venkatesh, Sonia Shenoy & Anuj Singhal.

Latha: The goods and services tax (GST) council has finished its meet and we have a reasonable promise that final tax along with the cess on cigarettes and on luxury cars will not be more than what the consumers are currently paying. Will you go by that or is there a worry that because there is an enabling provision at some later date, the taxes could be more?

A: As it comes out and as we call it as a sin tax, it is capped at 15 percent for the time being which according to me could be a good amount of breather/steady environment provider at this point of time for most of the companies without disrupting the existing set of the business etc, so that could be seen in the near future, at least some amount of stability factor as far as this particular tax goes and its impact on different companies and the consumers thereon.

However, from long-term perspective I do not know whether the enabling provision would be exercising the near future or maybe it would take longer time for exercising the rates which are more than the capped rates of around 15 percent at this point of time.

Latha: So you buy ITC?

A: ITC looks promising for sure, leave aside this particular move, the stock looks promising because of all the business verticals in which they are operating, each of them are showing distinct signs of growth and promises for better profit performance going forward. So certainly ITC remains a good pick within the fast moving consumer goods (FMCG) space.

Anuj: How would you approach Reliance Industries at current levels?

A: Fundamentally the stock remains quite comfortable having seen the expansion in the capacity in the petrochemical polymer segment, having seen the expansion in the capacity in the refining segment and the output probably would start contributing in FY17-18 along with lower cost of feed stock. The core business itself is expected to produce performance which is almost going to be 1/3rd more than what the company has been producing at this point of time, so maybe in 12-15 months time you should be seeing the full capacity of expanded volumes which would come into play from the core business itself.

However, the Jio business is having a valuation close to Rs 550-600 on sum-of-the-parts valuation basis which could reflect another Rs 400-500 jump into the stock price going forward. The retail business given the D-Mart's valuation I would assume and start giving the valuation perspective into Reliance, its combined stock from sum-of-the-parts perspective. So overall I am comfortable. The stock remains potential target price for Rs 1,600-1,800 levels going forward.

(Disclosure: Network 18, which publishes moneycontrol.com, is a part of the Reliance Group.)

For entire interview, watch accompanying video.