A lot of earnings are trickling in. For Reliance, it seems to be a mixed bag, while HDFC Bank is a bit of a disappointment. But ICICI Bank did post good numbers. How are the stocks going to react to these numbers and what will be the market reaction for all three?
Pankaj Pandey: I cannot comment on ICICI Bank, being part of the same group. But HDFC Bank delivered a steady quarter and right now, their strategic focus is shifting from balance sheet consolidation to accelerating credit momentum. There could be margin pressure in the near term because of the deposit lag in the deposit pricing, but we feel that HDFC Bank came out with a steady set of numbers. ROAs are at about 1.8 odd percent. So, we do not see any challenge in maintaining a buy on HDFC Bank. The earlier target was 2200.
As for Reliance, again, it was a mixed set of numbers. A good thing about Jio is that overall the subscribers have been inching up and that will drive the data usage for the company. Again there the key monitorable is the kind of price hike we expect. As of now, we are building about a 10% hike in tariffs, and that remains to be watched.
Overall, on the retail side things have been a mixed bag. Numbers have been slightly lower than expected. But overall, most of the heavyweights have come up with a steady set of numbers. So, I really do not see major challenges and a market downtick. But yes, we are still lacking triggers, especially when we look at banking and IT as a pack, which is nearly 50% of the Nifty and there is hardly any update on the tariff as such. That means this is the third week of consolidation, probably this consolidation is going to continue for some more period of time.
Among some of the other earnings, JSW Steel came numbers seem to be above what the Street was pencilling in. But going ahead, will these steel companies have a bit of a respite from the prices as well and are we going to see the prices moving up? What is your take on JSW Steel and how will the whole metal pack take the earnings and can we expect a positive reaction?
Pankaj Pandey: In the case of JSW Steel, overall the EBITDA per tonne was somewhere about Rs 10,800. We were expecting about Rs 12,800 – so slightly lower than anticipated. There were lower volumes largely because of the maintenance shutdown. Now things will start looking even better from Q2 onwards because that is when we will have volume growth also and then possibly some benefit of the lower coking coal prices.
But the JSW stock trades at eight times EV/EBITDA, and so it is already trading at rich multiples. Our sense is that there is a limited upside from current levels. What we like more is Tata Steel. While it also has witnessed maintenance shutdown, this year, we will have new capacities coming up and so there will be a good amount of volume growth. The bulk of their EBITDA is now driven by the domestic operation. So, Tata Steel is something we like more in the ferrous space with a target price of Rs 200.What are the kind of moves we have seen from banking earnings other than the Nifty 50 stocks? We have usually drawn this parallel between midcap and largecap IT. Can we now draw the same parallel for largecap and midcap banks wherein midcap banks could outperform the largecap banks this time around?
Pankaj Pandey: Within banks, PSU banks are looking relatively better largely because they are not losing market share. For them the proportion of external benchmarking rate is lesser, and so for them, the margin pressure is also lesser. Credit growth wise they are doing better. PSU banks are a relatively better bet. But even some of the NBFCs which have come out with numbers, like L&T Finance, looked okay to us. We have seen quarter-on-quarter slight improvement in the margins while the growth is slightly lower.
But some of these NBFCs like L&T Finance look attractive to us. In general, for banks or bigger banks to perform, we need a good amount of FII flows which is yet not coming and till the time the US market keeps on doing well, making new highs, the money will not really come to the emerging market. That is where probably the large private sector banks are stuck. But our sense is that this margin pressure will start to weigh in in the second half and things will start looking up for banks on a broad-based basis. but till that time it will be more of a stock specific move especially PSU banks are relatively better or some of the NBFCs are looking better.But a lot of earnings will be in focus and one of the other banks that will be in focus today is Bandhan Bank. How do you see the numbers this time around because though the earnings were not that great, some experts believe that the earnings were actually better this time and there was a mild and a small beat coming in on the NIMs as well. What is your take on Bandhan Bank because of late, Bandhan Bank, RBL Bank stocks have been doing very well?
Pankaj Pandey: I do not have a view on Bandhan Bank but a lot of these banks are beaten down. For example, RBL Bank trades at an expensive valuation of about 0.6-0.7 times. So, any kind of improvement from here on is a good opportunity to look at some of these banks. Specific to Bandhan Bank, I do not track this one.
What is your view on Eternal’s earnings that we are expecting to see later today, given the competition that we are seeing in the quick commerce space now? What is your take on Eternal in terms of its different segments and how do you believe this quarter could shape up?
Pankaj Pandey: Again, on Eternal, we do not have a coverage, but we like cement as an overall pack. For example, Jaypee Cement came out with a pretty good set of numbers. Volume growth was about 14 odd percent compared to 11-12 odd percent what we were anticipating; margin profile, EBITDA per tonne, were about 1200 plus. They are expanding on the wall putty side. So, we are quite hopeful of cement as a pack doing well including UltraTech Cement.
In the new-age businesses, we continue to like the EMS space. Any kind of incremental news flow in terms of Chinese being allowed to partner with some of these Indian companies is an incremental positive. Again we have Dixon and Syrma which we like. Otherwise, we are still not causing a lot of new-age businesses at this point in time.
This particular week we will have a lot of earnings from pharma as well as IT companies and even from life insurers. Help us understand that any sector that you will be keenly looking out for because we have seen the disappointment coming in from IT, and even in banking just select counters are doing well. What will be your sectoral picks?
Pankaj Pandey: Yes. Coming to IT, most of these companies have come out with a muted set of numbers and even outlook wise, it is very difficult to figure out any kind of a positive bias, given that this uncertainty related to tariffs is still lingering.
So, IT in general is going to struggle. Again, we will have to watch out for select names on which we are positive, the likes of Coforge and Persistent. There we are expecting mid-single digit growth, and that is where probably selectively one can look at.
We like the entire commodity pack. I already highlighted cement because last year cement growth was 4%. This year our sense is that the overall demand growth will be 7 odd percent, supply is about 6 odd percent. So, that way, structurally the capacity utilisation and all the other parameters will start looking up. So, cement is another one pack which we like and the same goes with metals because in metals again, while there is quarter-on-quarter improvement in steel prices, our view is that this will keep getting better in the second half.
Hotels as a space came out with a pretty good set of numbers. There was a sense that probably because of geopolitical issues, especially in May, things will get impacted, but we have seen a pretty robust set of numbers coming from Indian Hotels and ITC Hotels. So, that is another space which we continue to like. We are also picking up the fact that Goa is witnessing a revival in the overall tourist inflow. So, both these companies, Indian Hotels and ITC and even a company like Lemon Tree, will benefit given that all three of them have 5 to 10 properties especially in Goa. So that pack also looks good to us.
If I have to add one more, then hospital is another sector which is looking attractive to us. From that perspective, we are selectively positive on some of these names. In general, banking should do well in the second half.
