Anish Damania of Emkay Shares and Stock Brokers gives his view on certain stocks post their results. He says that AIA Engineering did pretty well from their sales and margins point of view. Speaking on Amtek India Damania feels that it's time for the stock to run.
He adds that it is interesting to note that volume growth is so huge in VSNL on the data side that it's more than compensating for the price declines.
Damania further states that they are pretty negative on Hero Honda and they maintain that. He also feels that there could be a re-rating case for graphite companies, be it Graphite India or HEG.
Excerpts from CNBC-TV18's exclusive interview with Anish Damania:
Do you like AIA Engineering's numbers?
Yes, we like those numbers. They did pretty well from the sales point of view and margins point of view. EBITDA grew by 110% and PAT growth was 240%. So it was a good set of numbers.
While that has got built a bit in the stock price, one thing, which came as a bit of a surprise was their talk about an issuance in the form of either an FCCB or GDR. They would have had internal accruals to do capacity expansion on their own. So this came as a bit of a surprise to us.
You got a target price on that stock at more than Rs 1,000 already?
We have that as our target price and it should be around that price.
Why do you like Amtek India and what sort of price target do you set out on this one?
Amtek India is a casting company and what I like about this company was that during the last two years when nobody setup an incrementally large casting capacity, this company went ahead and tripled their capacity.
So all the opportunities of growth, be it Maruti Udyog's diesel engine plant, and also Tata Motors' diesel engine order goes to them. Even TVS Motor to some extent has sort of said that no castings capacity has come up and Amtek is the only company to do this. So Tata Motors was a new entry into their business. Maruti supplemented them by giving more orders.
Their strategy has worked out well. Their capex is kind of over or they are well into the advance stages of capex and now it's payback time. So when one has a payback time when margins and profits are doing well, momentum is in and dilution is over, I think it's time for the stock to run. Probably we have seen that a part of that happened in the last one month or so.
What do you like about VSNL's numbers?
If one looks at VSNL's numbers, there was some decline in bandwidth prices way back in January and still they have held up on their profitability. Of course there was another cut in bandwidth and IPLC, International Private Leased Circuit, prices from September 1, so one should see that impact coming through in Q2. But it is interesting to note that volume growth is so huge on the data side that it's more than compensating for the price declines.
It's not on your hits or miss, but have you changed your price targets or ratings on Bajaj Auto and Hero Honda now?
We were pretty negative on Hero Honda and we maintain that. We were cautious on the two-wheeler segment for the last nine months. Partly we were expecting that a lot of pressure would come through with a lot of competition. Now with Bajaj Auto getting closer to Hero Honda in terms of sales figures, they have become very aggressive.
One should have seen the blitz, which they had over the last 1-1.5 weeks in the newspapers going up to the statement saying, "We will exit the 100 cc segment and make 125 cc, the 100 cc kind of stuff". This also sends shockwaves because the margin pressure will be immense.
So while there will be growth, the profit growth will be eaten away by the margin pressure. Whenever there is margin pressure, which we have seen in two-wheelers, stocks do not re-rate.
HEG is another of your hits this quarter?
If one looks at graphite, there are several myths in the graphite industry. Over the last few quarters, things were not panning out. But from this quarter onwards, one has started seeing growth coming through capacity expansions and having that effect both on sales as well EBITDA margins and down to the net profit level. So net profits have grown from about Rs 6 crore to Rs 16 crore for this quarter as compared to say Rs 11 crore for Q1.
The graphite industry to that extent is sort of linked to the steel industry because most consumption is to the steel industry. People want to say that it should get a same PE as the steel industry.
Our view is that look at the demand side and the supply side dynamics of graphite. There are seven players globally and India is becoming a bigger in this market. Indian companies are the only ones who are expanding their capacities and they are having those benefits coming through. So we are seeing that there could be a re-rating case for graphite companies be it Graphite India or HEG.
Disclosures:
I do not own any of these holdings personally. All these stocks, which we discussed are under our coverage, so I am giving our view on behalf of the house.
