On the auto pack
The challenges are different in different buckets of four-wheelers. As far as
is concerned, it is pretty well known that the company has declared that the chip shortage is going to affect the luxury vehicle production and that is across the board for all the luxury manufacturers. Tata Motors predominantly is dependent on JLR for its profitability and top line. So we will have to be careful about Tata Motors at this stage.
As far as Maruti is concerned, I will be a little cautious. The first quarter was a washout with significant challenges due to the lockdown. The second quarter has begun on a right note but there are multiple challenges ahead. Consumption has not yet picked up that much. There is competition in multiple segments including the SUVs where the sales numbers are picking up. Maruti is an excellent company but at this stage I am not recommending a buy.
Mahindra looks pretty good. Tractor sales are expected to be improving. Rural India has probably come out of the challenges of the second wave and rural consumption is again picking up. The FMCG numbers are demonstrating that and we believe on the back of the monsoon which has now recovered, tractor demands will keep moving up. So, Mahindra has a good runway ahead and at current level, Mahindra can be definitely bought by investors with a one-year time horizon and a target of around Rs 1,000.
On the pharmaceutical pack
The challenges in pharma today are on the back of competition and the price pressure in the US. Companies which have a significant portion of their income coming from the US are facing price pressures, margin pressures and these challenges are bogging them down. Dr Reddy’s is a case in point. Most of the companies which are large US businesses will have similar kinds of challenges. I would rather focus on businesses or companies which have a significant India component. Torrent Pharma is one we are looking at. The results have come out. There were challenges but this is one company which I will definitely look at.
I will also look at API focussed companies which has good prospects going forward. Granules can be looked at even at current levels also. Also, some of the interesting pharma names which are planning to come out with IPOs can be looked at. One company which did an IPO and moved up quite a bit is Gland Pharma. It can still move up from current level. The business is solid and you know their track record as far as the regulatory compliance have been exemplary. So, Gland is a definite bet.
On corporate and the PSU banks
I had a bit of a concern regarding the valuations at which HDFC Bank and
were quoting for some time. These are fantastic banks with a great balance sheet but at some stage, PE multiples are given for growth and if the growth is not happening in the loan book, how long will those PE multiples be allowed by the market was the question and that is the reason why these banks are showing a bit of a sell off.
Having said that, fundamentally there is nothing wrong. It is just that the loan books need to grow at a much faster pace for both HDFC and Kotak to keep pace with the multiples which they have been given by the market. As far as ICICI and IndusInd are concerned, it is exactly the opposite. They have started growing aggressively. The economy is opening up and showing signs of demand for private capex after a long time. There is demand for money from the banks and the banks which keep pace with that demand in a controlled and calibrated manner will definitely be rewarded.
However, to judge a bank by this quarter’s numbers will be incorrect. We went through one of the worst lockdowns and health hazards with the second wave and the banks definitely have a little bit of a challenge on the asset quality, loan book growth etc. This quarter, subdued results were pretty much expected from many banks and financial institutions and that is getting played out. But unless the loan book grows, the high PE multiples cannot continue for an indefinite period. Somewhere the correction is bound to happen and probably that is what is playing out for both Kotak as well as HDFC.
