The Stock Picks Of Daljeet Kohli Of IndiaNivesh

SKS Microfinance – Avoid in view of poor business model and potential interference from politicians:

We are not recommending SKS Microfinance. As a stock idea at one point of time much lower levels, we had recommended this stock but that was only for trading perspective.

On the fundamental terms, I do not like this business model of going into microfinance because mainly my concern is that these deals with very poor people and therefore there is always a very high risk of political intervention from various political parties.

So, I would rather avoid such a sector therefore I do not like this stock so we are not recommending this.

IPCA labs – Fall over FDA inspection is an opportunity to buy the stock:

We have a buy rating on IPCA labs with a target of 830, I do not think we are disturbed by this inspection.

Cadila – US and domestic business are poised for strong growth in future:

Cadila has a large products pipeline waiting approvals from USFDA. The hard work that they have done in last 2-3 years is likely to help them now. We expect US business to grow very strongly. On the domestic front Cadila was showing muted growth due to issues related to pricing policy. Now that those issues are settled, we expect Cadila to come back to industry level growth of 15-16% pa. Thus both US and domestic business are poised for strong growth in future. Cadila also has pipeline of 20 biosimilar products and intend to launch 2 of them by 2020 besides the one that they have recently launched.

Shilpa Medicare – FY17 or FY18 will be block buster years:

Shilpa Medicare is involved in high level of R&D on many oncology products. We like the Company’s capability to identify the products and build the capacities around that. It is already a very strong and established player for certain oncology related APIs. The company is now in process of building base for a very strong growth in FY17-18 when patents of many of the molecules that it is working on will get over. FY14 was exceptionally good year in terms of financials for the company thus optically growth in FY15 may look muted because of high base effect.

We expect FY16 to be normal year and then FY17 or FY18 to be another block buster year for the company. Near term trigger for the stock would be long pending inspection of one of its facility by the USFDA.

Lumax Auto Technologies:

We have a buy target of Rs 360 for Lumax Auto Technologies

Bharti Airtel:

We have a sell rating for Bharti Airtel. Most of our fall has already come in. We do not expect to see consolidated numbers becoming better. In terms off valuation, stock is now trading at 7.5 times EV to EBITDA, which is a higher multiple and it should not trade more than 6.5 times so that valuation comfort was not there that is why we initiated our sell call. From that level it has already come off 7%, so it may not be too much further to go down but we still have a negative view.

Market is volatile – stay put and add on declines:

At this time when market is so volatile and stocks, that we cover which are in midcap or small cap things, have moved much beyond. So we are advising our clients to stay put wherever you are already invested, accumulate may be in a smaller quantities the stocks which earlier you wanted to buy but you were not able to buy because the stocks had moved so much or they have moved much faster than the expectation. So basically time to remain in that same universe not time to add too many things at this time.

Banking Sector is overpriced:

We believe asset quality pain for banks is likely to remain for some more quarters. Government/RBI will have to take some strict /stern actions on defaulters, removing administrative bottlenecks and only then can the asset quality of banks improve. We are estimating capex cycle to revive only some time in FY16. Hence while long term view is positive on banks but near term the pain persists, therefore we are selectively positive on certain banks but overall we feel this sector is overpriced.

SBI & BOB:

For 2-3 year time period we like SBI & BOB. Both these banks have taken certain steps on managing asset quality, both of them are enough capitalized to take advantage of upcoming revival in investment cycle and valuation wise still have some space.

Info Tech stocks are well placed for growth:

We believe IT sector is well placed for growth. Our call is on demand revival from major markets (US and Europe) for most of the Indian companies. We believe visible signs of macro improving in US will lead to many US companies to re-start spending in a big way on IT which they had stopped in last 5 years. Increased spend on technology will lead to strong growth for many Indian companies.

We expect Rupee to remain above Rs 62 levels arising out of impending USFED action leading to strength in dollar against all currencies of the world. Any doubts on funds outflow from emerging markets (including India) will also put pressure on Rupee.

Twin benefits of revival in global demand and weak Rupee will result in good fortunes for all IT companies. Amongst the mid cap IT companies we like OnMobile Global (turnaround story), Thinksoft Global (potential to scale up immensely), KPIT ( strong dollar revenue growth), Mastek (value unlocking post de-merger of insurance and other business).

Pharma Sector – overpriced in the short-term:

Most of Indian pharma companies have grown on back of timely launches of generic products in US and other regulated markets. However due to patent cliff coming off and long delays in getting approvals for new products from USFDA, the process to launch new products in US has substantially slowed down. Meanwhile, the base business of many India companies has grown very large.

Hence base effect will play adverse to the growth numbers for these companies. Third, major change in US/regulated markets will come from the fact that now the launches are happening for those products where many Indian players are competitors. This means that now Indian players have to compete against other whose costs are similar v/s in previous scenario wherein there used to be pharma companies from other parts of the world.

This effectively means that earlier price erosion at the time of genericisation used to be much lower than what is happening now. Telemisartan is one good example of that product. In view of the aforesaid discussion we expect a gentle pause in strong growth of Indian pharma companies (especially those targeting US) for next few quarters. However in our opinion next growth trigger will come from biosimilars and highly differentiated limited competition products. Many Indian players are already working in this regard. Dr. Reddy’s, Cadila, Lupin, Biocon etc are all working towards these segments.

Most of the pharma stocks are trading at high multiples in present times hence leave limited upside scope. However, we continue to like the sector. We are selective on stocks where valuations are still justifiable and pipeline of products is visible. We like Cadila and Shilpa Medicare even at current levels.