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Nirmal Jain of India Infoline discusses his view on various stocks based on their earnings performance.
Jain believes that one should not write off Hero Honda yet because of its dismal performance because most of the time, they run some festive schemes in the month of October, in the month of Diwali.
Jain further adds that Federal Bank's result has been more or less in line with expectations. He also states that Usha Martin's numbers have been very good. Jain believes that investors who want to have exposure to steel sector, Usha Martin should be a good core holding for a longer term perspective.
As for India Cements, Jain feels that the stock may end the year with Rs 20 and it is a good cement company to hold on to.
Excerpts from CNBC-TV18's exclusive interview with Nirmal Jain:
One stock that is hogging most of the mind space is Hero Honda. Is it a miss for you, this time around?
Probably, one would expect flat results but net profits have been down by 9 per cent and Hero Honda has been losing market share for the last one year. But I think one should not write off this stock yet because most of the time they run some festive schemes in the month of October, in the month of Diwali.
So this month, numbers may surprise, before I put a sell or under-performer rating on this stock, I will wait for October numbers. Historically, their October numbers have been very good. Another point in favour of Hero Honda is that they are setting up a plant in Uttaranchal. So all other auto or two-wheeler companies are also setting up where there are huge tax benefits.
But the incremental tax benefit for the size will be far more significant for Hero Honda as compare to Bajaj Auto. So Bajaj Auto had a good run and it is quoting at a PE multiple, which is almost 50 per cent premium to Hero Honda's PE multiple. I would suggest that those investors, who are holding the stock for a longer term, should continue to hold and watch for October numbers, in particular.
Those who don't have the stock, should also watch for October-November numbers before taking fresh positions in the stock because this debt-free company at a PE multiple of 14 is attractive. They have a long history of doing very well in the market. The last one year has not been good but that's okay the management can fight back, they can come back and we should watch out for that.
What about Federal Bank's numbers; they went down pretty well with you?
Federal Bank reports have been more or less in line. Their provisioning has increased. So I would say that the numbers are good. 25 per cent increase in provisioning is more or less in line with the sector.
Is ICICI Bank better?
For ICICI Bank, most of the analysts have said that results are better but I would say that most of the analysts were expecting effective tax rate of 21% but it turned out to be 15%.
So their differed tax assets have been higher than what were expected. Therefore one should look into that. But I think they are better although not as good as one would like to believe. It is not like it is 30% profit growth vis-à-vis 20%, and I would place more emphasis on the PBT figure.
Usha Martin has reacted well to its numbers today. Do you like what you saw? Do you have any concerns on the margins slippage or the margins shrinkage?
Usha Martin numbers have been very good. If one sees their second half, they will have far greater utilisation of iron ore mines and also they have found coalmines. So this will become a fully integrated company. But historically, this company has always quoted at 6-7 times PE multiple, today the stock is up 5 per cent.
So in the first half, they did about Rs 10. In the second half, I think they will do Rs 13-14. So that is about Rs 24 EPS, there may be some more room from here. But this stock has never given higher PE than 6-7 PE multiple. But over a little longer term, those who want to have exposure to this sector, this is a good company because it's integrated.
This is one of the very few companies that have got iron ore mines, and one of very few companies again to get coal mines other than Tisco, Jindal Steel and Sail. They are into value added products, almost about one-third of their revenue comes from steel wires, which is significantly a value added product.
So I think those who want to have exposure to steel sector, this is a good core holding for a longer term perspective. But I don't expect much in the shorter term, because market has always valued this company at PE multiple of 6-7.
How did India Cements numbers look to you?
India Cement numbers are also good. In fact, their diluted EPS is around Rs 10.30. Most of their peer group companies are quoting at 15 P/E multiple, this company is quoting at slightly lower P/E multiple. In the South, normally there are rains in the third quarter. So historically, the dispatches in the Q3 are down, which would put pressure on their margins and profitability.
But one point that people might miss out is that this year, prices are incredibly firm in the Q3 and they were good in the monsoon season as well. Also, JFM (January-February-March) is the best quarter in terms of cement prices historically because construction activity is at its peak.
Taking all these factors into account, and also the fact that they have been repaying their loans faster and their interest costs are going down, I think they may end the year with Rs 20 and it is a good cement company to hold on to.
How are you feeling about the market? How have you read this sluggish phase that we got into in the past few trading sessions?
The fact about the market is that it has gone up so much and it is not falling; it is still holding out. No market can rise everyday by 1-2 per cent. I don't have any skills to advice intra-day traders or those who trade on charts. But as a little longer term investor, I think this is still a good time to invest in equities.
The market may have some jitters, some volatile bumps but structurally, our economy is doing very well. Our GDP is growing very rapidly, all industries and business confidence is at its high. If one looks at the results on the whole, they have been very good. In fact, they have been better than what most analysts would have expected.
After three years of good results, there is another very robust and very strong growth in earnings. I am very positive and very bullish on the market and I am not worried if the market takes a knock of 10 per cent at any point in time.
Give us a quick word on one of your competitors - Geojit Financial, where BNP Paribas is taking a very large stake. What are your thoughts on this interest that a lot of the global traders are evincing in the domestic brokerage space. When you would want to get some such participation in?
About myself, I cannot comment on that right now. I have to think it through, but about Geojit Financial, I think this development was expected. Sebi has reduced the turnover tax from Rs 1000 per crore to Rs 20 per crore. So they have bought it down to nil level.
Earlier, the problem was that if there is a change in control, the new owner had to pay turnover tax for five years. If the net average brokerage yield is around 7to 8 basis points, and 1 basis point is almost 15 per cent of your topline, which will knock of all the margins. But now, the change of control will become much easier and the industry's consolidation, which was held up primarily because of this, will now start taking place.
Most of the brokers in India are doing well and if one looks at Geojit, they have not sceded control. In fact, they have given 30 per cent stake to BNP Paribas.
So we will see this phase for the next 3-4 years for all the foreign brokers or large banks would like to get into this space. I am personally very bullish on financial services in India because penetration is very low. If one looks at equity investing, it is just 3-4 per cent of retail investing or retail savings, as a whole, which is very low.
It is 52 per cent even in South-East Asian countries like Korea and USA. So even if it goes up to 10 per cent levels as in the mid-90's, then there will be a huge upsurge in volumes and in equity investing.
In the next 3-4 years, very good companies and large PSUs as well as private sector companies will go public. This will increase the breadth of the market and will get new participants in.
Any disclosures to make on stocks, which you spoke about?
My family and I own ICICI Bank. I also own India Cement, I don't own Usha Martin, Federal Bank. I hold Hero Honda. I don't own Geojit because I have enough of Indiabulls.
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