Mayuresh Joshi positive on Maruti & Hero Motocorp

Latha: What among the auto sales numbers impressed you? Is there anything that would propel you to buy any stock?

A: If you look at the auto universe across four-wheelers and two wheelers, it was a tad bit disappointing, soft and tepid but largely if one lays out the larger picture over the next few months and as the economy is getting remonetised, it is a matter of time that the volumes will normalise over the next few weeks and quarters. Having said that, among the four-wheeler space Maruti Suzuki still appears to be a standout performer and the kind of volume degrowth that we saw in the past few years along with the new launches that Maruti has actually come out with and the response that it has received - Brezza, Baleno, Ciaz - the response has been phenomenal with the waiting time and lesser discounts coming on these new models, rather no discounts at all. My sense is that the volume growth should remain extremely strong for Maruti over the next few quarters as the new production facility starts producing 250,000 more vehicles  then the waiting time also goes down which effectively means that the bottomline growth should be very strong for Maruti. So Maruti stands out within the four-wheeler space.

However, within the two-wheelers space if one leaves aside Q4 being an aberration of sorts in terms of how volumes will pan out. My sense is with a good winter output the rabi harvest has been extremely strong. Hero Motocorp with rural focus should start picking up steam in terms of volume growth coming back in the next few quarters and as that happen, my sense is that the realisations should improve. Yes, there has been input cost inflation on the raw material side but that can get offset as volume starts growing and the pass-through happens. The operation leverage should start playing on the balance sheet as well, so you have to pick and choose - Maruti within the four-wheelers space and Hero Motocorp in the two-wheelers space.Latha: Any troubled stocks that is interesting you, the Jaypee Group or stocks that seem to be coming out of trouble?

A: Not at this point of time but what I like at this point of time would be selective non banking financial companies (NBFCs), so Equitas Holdings for example. It has got strong book, being a small payment bank. The benefits do come when it comes to the priority sector lending portfolio. It is also equally adaptable to borrowing cost because the deposits that it will be able to garner will get cost down. Second, even in terms of its core spreads, the core spread should get maintained in my opinion and that should entail return on equity (RoEs) of 2.8 percent, RoEs of 11.5-11.8 percent being maintained, net interest margins (NIMs) of 11.5 percent being maintained. So we are expecting very strong growth on the loan and earnings front and on a price to adjusted book of 1.8 times, any decline looks attractive.

The other stock I want to discuss is Blue Star. We have spoken about this a lot in the past but what has happened within the industry is that the kind of market share gain that Blue Star has done specifically in the room air-conditioning market, is close to 10.5-11 percent. Its cool package product division is doing exceptionally well and the split AC division is performing along with window AC of around 47-48 percent of contribution. So we are expecting strong topline growth of 16 percent happening on that front, margins to reach 7.2-7.3 percent and though demonetisation might affect in Q3 and part in Q4, my sense is that the earnings growth can be phenomenal and along with the cash that received for Blue Star Infotech, the earnings growth can be equally strong on the bottomline.For entire interview, watch accompanying video.