Atul Auto – 20% volume growth expected vs. 7% for Industry:
We are quite positive on Atul Auto with a target price of 800. This company has grown their volumes by about odd 40% in the three wheeler space compared to about 7% for the industry and we would expect that going forward, they will deliver about 20% kind of a volume growth.
Ajanta Pharma – 25% CAGR in profits expected for couple of years:
Ajanta Pharma is very consistent in terms of performance similar on the lines of Lupin. This company’s profits would grow about 25% CAGR over the next two or three years and despite having no exposure to the US market, we draw a lot of comfort in the kind of growth the company has delivered up till now and what it can deliver in future.
PVR – EBITDA growth of 16% expected:
PVR has a 25% share in terms of the entire multiplex screens. In the next two years, PVR will continue to add about 70 to 80 odd screens and will deliver EBITDA growth of about odd 16% which is why we like PVR.
CESC & other power/metal companies – wait for clarity owing to aggressive bidding for coal blocks:
Largely, the companies have been quite aggressive in terms of bidding. One can look at this aggressive bidding from two parts. One, the companies which have signed PPAs will be impacted more. For example, we were expecting that under recovery for CESC on the fuel side could be somewhere about 30 to 40 paisa whereas, I think companies which have not signed PPAs, they would still try to figure out whether this cost can be passed on when they do the final signing in terms of PPA.
So as of now, it is still a wait and watch situation but we are still not chasing this sector because we still require a good amount of clarity as to how these companies would address the aggressive bidding which has happened because this reminds us in terms of the UMPP biddings which had happened in the past.
UltraTech or Heidelberg – high margins and volume growth, beneficiaries of capex cycle revival:
We are positive on UltraTech and Heidelberg. What we are expecting is that the volume growth for the sector could be about odd 9% whereas companies like UltraTech, which has delivered far better volume growth compared to the overall industry average, would continue to do so. Same is the case with Heidelberg wherein they have already expanded their capacity.
In the last quarter, the margins were somewhere about odd 17% whereas the peak margin for the sector has been about odd 25%. So, there is still a lot of headroom in terms of the margins to actually go up from current levels which would drive the bottom lines going forward. We are quite positive that once your capex cycle revives, this sector would be one of the biggest beneficiaries and which is why we like UltraTech with a target price of 3240 and Heidelberg with a target price of 105.
Realty stocks – upsurge is not sustainable:
We are positive on very few selective stocks from the entire real estate pack. We do not expect the kind of returns that real estate has delivered over the past four-five years especially because if you look at the other competing class like gold or for that matter real estate, it would not give similar kind of returns what equities could deliver, which is why the entire segment does not really appeal to us. Only selectively, we are positive on certain stocks. Beyond that, we do not see this trend to be sustainable.
Private vs. PSU Banks:
The banking sector is facing some kind of asset quality concerns and which is likely to persist for one or two quarters more. In this particular quarter though treasury gains were seen mostly across the banks but the asset quality continues to impact most of the stocks especially PSU banks.
We would like to believe that private sector banks like Axis Bank have done a good job in terms of maintaining the asset quality. They have been guiding about slippages of about 6250 whereas in nine months, we have seen somewhere about 3400 odd crores. So we like a bank like this wherein we would expect ROEs to be maintained at about odd 17% and ROAs to the tune of about 1.8% but as we get better clarity in terms of asset quality, one should look at PSU banks from a slightly 12 to 15-month kind of a perspective.