Global challenges are not going away, the bigger concern crude oil has been partly addressed, said Pankaj Pandey, HoR, ICICIdirect.com. He told ETNow that sluggish Chinese sales would put a brake on Tata Motors going ahead.
Edited excerpts:
What is your year-end 2018 strategy in terms of advice giving out to clients?
Overall, what we have started with or we will be starting next year with is a good macroeconomic setup. Crude is definitely not the worry at this point and overall, inflation expectations are going to be far lower and which is why the prospects of (RBI) rate cut brighten up. Global challenges would remain, but for us, crude is a bigger concern which has been sort of addressed.
We expect overall earnings growth this year to be about 14.5 odd per cent and next year, that should inch up to about 22.5 per cent, largely anchored by corporate banks and which is where I think banks like Axis Bank and SBI should do extremely good. In addition, we like some of themes like the entire hospitality space wherein structurally what we are seeing is the demand growth has been about 6-7 odd per cent.
This year, it has been about 8 odd per cent whereas the supply has been increasing at about 3-4 odd per cent. Which is why, structurally we expect ARR and occupancies to inch up and we like the entire lot. So yes, it has already done well. We like Indian Hotels as well as Taj GVK from this pack.
Besides, there are stock specific opportunities which one can look at. In pharma, we like Axis Bank and Divi's Laboratories. Besides, in logistics, we like Container Corporation of India.
What is the call on Tata Motors and the turnaround strategy that they have embarked on for JLR? I do not know how much would that lift sentiment in a meaningful manner but it did bring about a facelift yesterday.
So the company had already chalked out plans in terms of cost cutting measures and recent job cuts are part and parcel of those measures. But overall worries for the company would still remain because if you look at the Chinese sales in November, it's still down in double digits.
So they have been down in double digits for quite some time or in the past few months and I think overall other geographies are also not really looking that great. So cost saving is one of the measures wherein the company could sort of mitigate the kind of challenges it is facing. Overall, I still do not see autos in general outperforming the markets next year.
What are your top two ideas where you think 15 per cent if not 15-20 per cent could be made in next one year?
Some of the stocks we like include the hospitality theme wherein we like both Indian Hotels and Taj GVK. For both these companies, the EV per room is below their replacement cost and typically, what we have seen is that whenever there is a rebound in the industry, I think at least the stock prices should be trading closer to the replacement cost. Which is why I think we like this entire space.
Something like Concor is what we like. The biggest challenge for Concor has been that they have really not grown in the last 3-4 years and largely because they derive good chunk of volume from two or three major ports and one of them is JNPT. JNPT is expanding its capacity or nearly doubling capacity by FY22. The capacity expansion will drive the volume for Concor and I think the government stake is about 54 odd per cent. Which is why we do not expect much of sort of dilution at the government level also. With the kind of no price performance and better volume growth going forward, I think this stock should relatively do better in the overall logistics space.
How are you approaching the metals basket, what is the call with some of the metal majors, especially Vedanta and Tata Steel?
We like Tata Steel in particular. I think the company is making all the right steps. They have got overall debt of about Rs 1,07,000 odd crore and that is what the biggest challenge has been. So yes, the JV will take about Rs 20,000 odd crore kind of debt and what we sense is that post winter cuts, the steel prices overall should sort of stabilise.
If the prices remain stable for the next 1-2 years, which is what we sense, we will see a decent amount of reduction in Tata Steel. That should sort of prop up the market cap. Not that we are expecting a rerating on the basis of EV by EBITDA but domestic prices have been holding pretty strong. Last two quarters have been pretty good. So I think Tata Steel is our top pick in the metal space.
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