Mayuresh Joshi expects earnings to drive mkt; picks 12 bets

A: Clearly, with the fall in brent prices, the reaction on this stock has been very obvious but with the increase in expectations from the Barmer Fields and the kind of production estimates that will go through in the next two years -- our take is that the numbers will reflect a far better scene over the next two years if you leave aside the caveats of oil prices in the interim. So we still maintain an accumulated rating on the stock. The stock might probably correct, so every correction probably gives an ideal chance for long-term investors to start chipping into the stock.

Ekta: You have come out with a Diwali Special Strategy Report considering that we are going into Diwali next week, what would your recommendation be for the trading sessions up to Diwali maybe?

A: It is a long-term call that we are taking out from the Diwali report. We are looking at Sensex targets of 30,300 over the next 15 months more or less based on falling crude prices, the inflation coming down, the rupee stabilising and earnings probably estimated to grow at 19 percent over the next two years on the Sensex side to around Rs 1,842 forward valuation of around 16.5 times.

So broadly within this theme itself, what we are liking is the private sector space -- an Axis Bank and ICICI Bank but we have clearly seen branch expansion going through and clearly the operating leverage benefits will start reflecting onto the balance sheets. The ROE expansion has already been seen and there will be massive margin expansion as well over the next two years.

Clearly, the asset quality had been some amount of concern for the banking sector overall but if you place Axis Bank and ICICI Bank in the period of asset quality, they remain at the lowest end --so Axis Bank around 0.44 times in percentage terms for the net asset ratio, net NPAs had clearly even ICICI Bank to that matter at 0.87 compared to 1.87 over the last two-three years augurs well for the banks. So with branch expansion, the kind of capital market expansion would augur well for the stocks, which will lead into expansion in their earnings. So we have to be very bullish on Axis Bank and ICICI Bank in the private space.

From the public space we are liking Bank of India (BoI) and Punjab National Bank (PNB) but I believe the asset quality might have hit the trough as far as both these banks are concerned 0.5 times price to book BoI, 0.8 times PNB, we believe strong earnings momentum might probably come through for both these banks in the next couple of years.

Anuj: Two midcaps if you could tell us why you like them and what is the story here, one is Banco Products and second is Siyaram Silk Mills?

A: Banco is the market leader probably in the after market radiator segment and the gasket business is where the company has a niche. So 80 percent of its domestic sales probably coming from the CV cycle. We have seen CV cycle turn. So if you look at SIAM estimates and industry reports, over the next five-six years, you might see 11-15 percent volume growth specifically for the CV industry.

When you are talking about exports, it has got good market share gains and that accounts for 35 percent. If you look at the balance sheet for Banco, we are expecting the net debt to come down to Rs 88 crore over the next couple of years, the cash flows to improve drastically which would improve debt return ratio. So the REOs/ROCs would greatly improve and so could the margins of the company going forward.

So clearly, our take is that in terms of topline growth, Banco should exhibit 15-20 percent topline growth to Rs 1,550 crore. The bottomline should grow anywhere between 12 percent and 15 percent, Rs 130 crore and if you look at valuations, Banco is currently trading at on 7.6 time FY16 estimated earnings. We estimate Banco to report probably an EPS of Rs 18 and if you assign a forward multiple of 10, our take is that Banco should arrive at a target price of around Rs 182 over the next 12-15 months.

Similarly for Siyaram Silk Mills, if you look at the industry profile and if you compare Siyaram with the other player like an Arvind or Raymond, it is available at a very cheap valuation. If you look at the brands including Siyaram, Hampstead, Oxemberg these brands within themselves are market leaders. So if you look at their earnings trajectory as well, our take is that the topline should grow anywhere between 17 percent and 18 percent over the next two years to Rs 1,850-1,875 crore. So bottomline should grow at 32 percent somewhere in the range of Rs 111 crore to Rs 115 crore.

So our take is that if you look at the return ratio is improving, you look at the kind of readymade garment mix to the overall portfolio, that should increase to 20-21 percent. That should take earnings into its stride and probably improve the return ratios for Siyaram.

Clearly, if you look at the debt profile, with improving cash flows the debt should come down drastically from Rs 275 crore to Rs 200 crore and even less over the next two years. So the return ratio is improving, valuation is not too expensive, if you compare Raymond and Arvind, the stock looks poised for good growth ahead.

So our target is Rs 952 based on all these assumptions that we have laid out over the next one to one and a half years.

Ekta: Crompton Greaves is one of your Diwali picks as well and coincidently it comes out with its numbers today and the other thing which will be in focus will be with regards to the de-merger or the possible de-merger of its consumer business. Can you tell us if you all are working in terms of any sort of valuations with regards to that, the expectations in terms of the numbers and what makes you positive on Crompton Greaves?

A: Clearly, I think the de-merger business will be a huge positive for Crompton Greaves. If you look at the kind of consumer business numbers that have thrown up from Crompton over the past two years, they have been extremely positive if you take the fan segment, if you take the lighting segment, the residential pump segment, they are the market leaders in all these segments.

Clearly if you look at the expected numbers to come from Crompton Greaves, our take is that a 10 percent increase in topline to around Rs 3,550 crore, the bottomline should show substantial amount of improvement and that is based on the fact that a lot of the restructuring exercise that Crompton Greaves is probably doing more or less on its overseas operations, which accounts for more than 50 percent of its revenues, that will start bearing fruits. If you take in to account the Hungarian operations, the Canadian operations, the US operations, all of them should start bearing fruit over the next couple of years.

So in that sense itself, our take is that Crompton should trade at higher multiples going forward as well and again clearly the return ratio profile or the trajectory should greatly improve for Crompton Greaves hereon. So good numbers expected for this quarter and again restructuring exercise will ensure that the margin growth and the earnings profile remains stuck in for Crompton Greaves. So I think we have stuck to our target price of Rs 235 for Crompton over the next 12 months.

Disclosures: Mayuresh Joshi does not have any personal holdings in the stocks discussed but he might have discussed all these stocks with his clients.