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Not optimistic about earnings revival in FY21: Sameer Narayan

Compared to ICICI Bank, one would be better off looking at SBI even on a shorter-term basis.

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Updated: Dec 04, 2019, 12.18 PM IST
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Sameer Narayan2-1200
We are likely to see more downward revisions to the already lowered earnings estimates for both FY20 and FY21, says Sameer Narayan, Market Expert. Excerpts from an interview with ETNOW.

If you were to stick your neck out, which is the stock that we are going to be talking about?
There are trends that one would need to pick up like insurance and asset management companies. But, the price is also important.

Santa seems to have come early this year. What is the setup looking like for the rest of the month?
The data points that have emerged of late are giving investors a bit of concern vis-a-vis the price movement being matched by the underlying reality. There are some green shoots but those green shoots need to be further endorsed. Auto sales were decent in October but was bad again in November. That is getting people worried. Obviously, there are sector specific issues. An emission norm shift is happening. There is a calendar year shift for vehicles but having said that, the overall manufacturing data raises concerns about growth because A) that will take time to mend; and B) the amount of rate cut and excess liquidity that you have seen in the system plus the way the government has been extending credit to MSMEs, through the PSB outreach programme. All that will probably take more time to show up in growth numbers.

Till that time, on an immediate term, you are likely to see more downward revisions to the already lowered earnings estimates for both FY20 and FY21. What is disturbing is that even as we roll forward to FY21, there is not much optimism in terms of actual earnings estimates.

JP Morgan has come out with a headline called Tactical Research Idea. We believe the share fall in State Bank of India will be less and there is time to revisit State Bank of India purely based on the valuations.
As you said, it is a tactical name. Maybe they are trying to forecast near term price movements, but having said that, there is enough news flow to justify that GST revenues have picked up and crossed the Rs 1 lakh crore mark for the first time in recent past, That is definitely a boost. SBI ownership is not as high as perhaps the private financials which has been the trade for pretty much the whole of last couple of years.

So, as the IBC process starts happening, more cases are settled and the credit growth in the system picks up, SBI will start showing more confidence. Plus, obviously there is liquidity, even in terms of them getting selling stake in their cards business. From a valuation basis, it is a good franchise and from a two- to three-year perspective, if one were to take a call on which way the Indian banking system is likely to go for, we think it would be PSU banks and perhaps SBI as the torch- bearer would be the preferred bet amongst all the others.

Does it make sense to buy ICICI Bank afresh even at these levels?
Well, between ICICI Bank and SBI, I would be more comfortable with SBI because there you are likely to see the government talking of some sort of relaxation on the GST slabs, you are looking at the IPO liquidity and the fact that in case of rate cut, the transmission is more seamless in a PSU bank rather than a private franchise. I would probably be better off looking at SBI even on a shorter-term basis.

The overhang for Zee is over but the overhang for the stock is not over yet?
We are getting these reports about directors mentioning corporate governance lapses and the management clarifying on that. There is too much news flow leading to abrupt price gyrations. But the underlying business is there; subscriber growth is there while advertising growth is not as strong as one would have liked. But the business is available at Rs 28,000-29,000 crore, There is enough merit for one to take a slightly long-term view, assuming that once we come out of this downturn, things will come back to normal. You are getting almost one-third eyeball share of the India market. So, is the franchise valuable? The answer is yes.

People would tend to take a view that if all these things are behind us and now with Punit Goenka being firmly established as the person to take the company forward with the backing of the investors. If that is a settled deal, people would want to take a slightly longer term view as to how the franchise would shape up.

I never thought Eicher would be a 30x. It may be an exception but the number three player, TVS, has given 10x returns?
In Eicher, when the yearly sales of 60,000 Royal Enfields suddenly becomes your monthly sales, obviously there is a 10-12x kind of a revenue impact. In case of TVS, what changed was their entry into scooters. They captured the entire scooter segment for a fairly long period of time. And to that extent, it was a virtual monopoly.

People who have participated in the TVS story, clearly were playing the scooter shift rather than the discretionary motorbike because Royal Enfield was a very high priced bike, whereas in the scooter segment, the TVS’s Jupiter was a Rs 40,000 scooter and that saw the numbers come in at a fast clip for TVS. That is clearly reflected in the stock price as well.

There are concerns today that even today it is perhaps an auto major which is available at a single digit margin. So the margin story has still not played out but the capture of the scooter market growth is completely a TVS story.

A sector like auto is not like centred around startup or AI or big data. It has bikes. Royal Enfield is the oldest platform in India. The same bike has made a come back and that stock has given 30x returns, That just means stock picking made a lot of difference.
It is actually a function of the way customer preference and consumer demand shapes up. For example, in a market like India, on one end, the sub Rs 50,000 scooter market is doing well and at the same time, a Rs 1,50,000 Royal Enfield is also growing at almost 12x the volume.

Eicher used to sell about 60,000 vehicles per annum about eight years back. Today, they sell that in a month.

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