Why Gautam Shroff is betting on Tata Motors & Motherson Sumi
In metals, we would want to play a Jindal Steel followed by Hindalco, followed by Tata Steel.
- It is far better to invest in boring businesses than constantly walking on minefields: Nilesh Shah, Kotak AMC
- Stick with big, quality players rather than looking for value: Aashish Agarwal, CLSA
- Sanjiv Bhasin prefers pharma to IT, has outperform on 3
- Foreign funds likely to increase India weightage: Sunil Khaitan, BofAML
VST Industries is going to be in focus when you have a marquee name like Radhakishan Damani picking up stake. If one compares how some of these tobacco stocks have done and how they are quoting in terms of valuation as opposed to their global peers like a Philip Morris etc, do you find value in the space as limited as it maybe?
Absolutely. Undoubtedly there is a lot of value in ITC and VST Industries. But the stocks have gone nowhere and on a longer term basis, we are positive, we like the name. There’s only one caveat in the short term. A small study of ours says that between November and February, in the runup to the Budget, ITC has always been a laggard because of the probability of sin tax being imposed. For the next three months, ITC might not go anywhere but on a three-year, five-year call, we are very positive.
Despite ITC diversifying so much, I still want to believe 90% of the revenue still comes from tobacco. With electronic cigarette ban coming in place, it augurs well for ITC.
Give me a stock idea or a business where you think right now there is gloom and doom but six months to a year from now, things will settle down. Markets currently are ignoring the intrinsic value of that business because of noise, sentiment and momentum?
With Fed easing a double expansion of balance sheet and rate cuts, global is giving me a lot of comfort. Domestically, the economy is yet to recover but the good news is that globally things are looking fine. What we would want to play from here on is export- oriented stories. In the metal space, it is basically the lesson we have learnt from the 2016 cycle, that all the globally linked and the export-oriented stocks will recover first.
In metals, we would want to play a Jindal Steel followed by Hindalco, followed by Tata Steel. We would want to play export auto, Tata Motors being my top pick over there.
The one story that will do well from here on which is not doing very well in the auto space, I think is Tata Motors. It can do very well from here on. Given that the parent has injected money, there is an oversight and there is some serious commitment with things turning around. They are also looking to monetise the JLR as an asset which is very marquee and a price asset in their portfolio. Among largecaps, Tata Motors can more than double over a period of time. It is followed by Motherson Sumi, again an export-oriented story. All the capex is behind us. While the meltdown in the globe was led by auto, the recovery will also be led by auto. Motherson Sumi has set up plants across the world which caters to practically 60% of the globe and we want to believe that is one stock which can do very well from here on.
What has gone wrong with Aurobindo Pharma?
I have not actually looked at that specific name per se but our top picks in the pharma space have been Cipla, Dr Reddy’s followed by Sun Pharma. We have started liking Cipla of late and we have increased our weight on it followed by Dr Reddy’s.
Today everyone is sympathising that after AGR dues, Vodafone Idea, Bharti’s balance sheets will have a problem. But what about banks?
This is a slightly tricky call. We have to wait and watch what actually happens. If some kind of a moratorium or a bailout package comes through, then banks are pretty safe but if that does not happen, then we are staring at large numbers that have been advanced to these telecom companies.
I am pretty sure that government intervention will be required and some kind of assistance is required to avoid that kind of a disaster. But we have to see how things play out from here. It is difficult to predict.
Our top picks in the pharma space have been Cipla, Dr Reddy’s followed by Sun Pharma. We have started liking Cipla of late and we have increased our weight on it followed by Dr Reddy’s.
Other than Bajaj Finance, AU Financials and Chola are the two NBFCs that have done well. Do you track any of them?
AU Bank has been our pick. We initiated our coverage on 10th or 12th of June. We came out with the price target of Rs 880 on the first quarter earnings. We revised our price target to Rs 1,000. With yesterday’s up move in AU Bank, the price to book is looking slightly expensive. It has become five times price to book but given that it is an asset-led story, it can keep compounding without much quality issues and this can go on for about a decade.
We are very comfortable that the company will raise funds, will dilute and the growth will continue. It is a very illiquid stock and that is why one day of somebody’s interest has given it a 10% bump up. But we are comfortable buying AU Bank even now. There is a lot more steam left in AU Bank.
Just on the back of earnings some stocks that have stood out from a Muthoot to a Britannia, pick up any one where you have looked at the numbers closely. What you would be thinking now going ahead?
We are very comfortable even at current prices given that government spending is coming back in rural India. For almost eight, nine months, there was no expenditure there. Money flow has started in the system and despite trading at very rich multiples, there is a lot of comfort in these consumer names. I would still take some money off the table or not choose a consumer company over a consumer durable company and that is where there is comfort in Britannia being a market leader in biscuits.
Plus, over the years, we have seen that they have gained 900 bps market share from Parle. They have got their act together. We are very comfortable even buying Britannia at these prices.