The move on Titan is justifiable after the strong Q2 commentary but Tata Motors has already scaled up to a 52-week high. What is your advice for investors who missed out on the rally?
Tata Motors has several pulls and pushes and so it is very tough to evaluate this stock, given that JLR is under significant pressure right now. There have been some brokerage upgrades and that has created the excitement around Tata Motors. But overall in terms of outlook, the management has guided that margins near term will be under pressure. UK sales data was bad. China is a major market for them and that is also seeing pressure. So on the JLR front, things are not so great.
Domestic operations are doing well but that is around just 15-20% of the total value of Tata Motors. I would think that it will be tough for Tata Motors to significantly rise from here. Once results come out, the stock could possibly cool off. This is a good opportunity to book out.
It seems that the Q2 commentary from both Lodha as well as has instilled fresh lease of life in Oberoi Realty and . Both are scaling up very smartly.
Yes that is true. Real estate was expected to do well and the data which is coming out is reflecting that. Record low rates of housing loans are helping the companies especially who are there on the residential side like Sobha. Oberoi has been more on the premium side. So let us see how much they actually benefit.
I think those which are in the mid market are benefiting a lot. Sobha is one of them. The key now will be to monitor their profitability because many of these companies are coming out with sales data with not too much commentary on profits, unlike Marico which actually came out and said that although growth is good, margins will be under pressure. So it will be important to see the margin picture also because finally it is profits which will drive the stock price.
Directionally, real estate still should be good over the next few years but none of these stocks are in the undervalued zone as they were around six months back when DLF was around Rs 200-220; Oberoi was around Rs 500; Sobha was around Rs 400 after moving up from Rs 200. That period is over now. Valuation wise these stocks are no longer attractive in my view but directionally next few years will be good. So I think these are buy on dips stocks.
Is there a case now for a re-rating in the Tata stocks?
It is very tough to take a group view because the group never had any issues related to it with regards to corporate governance, etc. When we talk of group re-rating, we normally look at something that changes for the entire group and leads to the stocks in the group getting re-rated. Tata Group fortunately never has those issues. There were issues related to a lack of focus in many of the companies especially on profitability. That has changed and a focus on profitability has come and has led to Tata Steel turning around its operations obviously benefiting from the rising steel prices also.
We have seen what has happened in Indian Hotels among the smaller companies in the group and we have also seen many of the other stocks move up. So I think this is more due to a change in focus to focus on profits rather than just managing the company for its employees, etc. TCS always had a high profitability quotient but that has come to the others in the group.
Most of these companies are in very diversified industries like Tata Motors, steel, hotel, Voltas or Tata Power and it is very tough to give a composite view that the entire group should do well at the same time or not do well. Right now, everything is moving up in the market. So people are seeing that correlation but then that correlation is tough to build.
