- 3 years ago
#HDFCSecurities' Devarsh Vakil shares insight on #Infosys, L&T, #HUL and others stocks to watch in trade today. #BQLive
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00:00 Hello and welcome to BQ Pram, a very good morning I beg your pardon to all the viewers,
00:06 I am Heeral Dadia.
00:07 Overall, yes, the sentiment is negative in terms of where markets go in today's session
00:12 after the kind of surge that we saw yesterday's day of trade on the back of the weekly expiry
00:18 but it's mainly Infosys and the IT majors which have played a spoiled sport.
00:22 We are somewhere around those 19,800 levels as we speak but cuts of almost around 9/10
00:27 of a percent coming in there.
00:29 And if you see in terms of Bank Nifty as well, we started off the trading session with support
00:34 coming in from the banking majors but there is cooling off coming in there as well.
00:38 After hitting a high of 46,369, we have gone down to levels of around 46,073 as we speak.
00:47 So interesting day of trade, a lot of stock specific action not only in the large cap
00:51 space but also in the broader markets and you have Reliance Industries that will be
00:55 reporting numbers in today's session.
00:57 So there is going to be some interesting moves on that counter today as well as early next
01:01 week.
01:02 Joining us on the show to discuss the individual counters is Devash Fakil from HDFC Securities
01:09 to tell us more in terms of what's in store from here on.
01:13 Devash, good morning and welcome to the show.
01:15 Good morning.
01:16 Thank you for having me.
01:18 Devash, let's start with a couple of counters which have reported numbers.
01:22 Firstly, you have HUL.
01:24 The disappointment has come in with regards to where the volume growth is concerned because
01:28 that has almost halved.
01:31 What's your view on HUL taking the Q1 into consideration and with that, let's also look
01:39 at ITC which has been probably galloping at a different pace altogether.
01:45 True.
01:46 So HUL did announce about 6% revenue growth that was below our expectation because most
01:55 of the growth happened because of the inventory destocking by the trade in anticipation of
02:00 the price cut.
02:01 So almost there was only 3% volume growth.
02:05 In near term, these stable commodity prices, growth will be there but it will be more flattish
02:12 in our expectation.
02:16 Obviously, the smaller players are also gaining market share.
02:20 They are also benefiting from the softening of the RM material and they are passing on
02:24 their benefits and that's why I don't think HUL will be able to increase any market share.
02:31 We have modeled a gradual recovery in demand over the next two, three quarters and because
02:37 whatever price cuts which are going to happen now, there is a lag or two, three quarter
02:41 lag and after that demand will pick up.
02:44 Right now, it is quite expensively valued.
02:46 Our expectations are that even if we model for this growth, it is trading at almost 47
02:55 times our June 25 earning and even if we give that much valuation, we come to a value of
03:01 25-50.
03:02 So, around 26-50, we have a reduced rating on HUL and we think that there are better
03:08 opportunities in the market as you have mentioned companies like ITC which we have been recommending
03:15 for a while.
03:16 Right, so that's with regards to FMCG players, that's HUL as well as ITC.
03:22 The other name that is in focus in today's session is Infosys.
03:26 7-10% cut coming in in terms of the markets, the guidance cut that has come in there as
03:32 well and that's not something that the street was actually anticipating.
03:36 Devarush, how are you looking at Infosys, number one and two, if you have to look at
03:41 the sector as a whole, how are you dividing it specifically between the large caps as
03:47 well as the mid caps because the trend that I have been picking up is from the mid cap
03:51 counters, specifically the companies which do not have a large exposure to the BFSI space,
03:57 they are the ones who have done much better as compared to the large cap names.
04:03 That's true.
04:04 So first let's talk about Infosys.
04:06 So Infosys growth rate was about 1% QOQ on constant currency terms, that was actually
04:11 a little better than the market expectation and peers.
04:14 But they have lowered the guidance to 1-3% in constant currency terms which implies almost
04:20 0% kind of sequential growth over the next three quarters.
04:26 So management has attributed this cut in guidance to lower than expected volumes and lower ramp-up.
04:32 But we see that these recent deal signings, especially they have almost net new $1.2 billion
04:39 of new deals which they have got here and that is one of the highest, these are mega
04:46 bookings they are doing.
04:47 So that gives us the visibility at the end of this fiscal year and in FY24.
04:53 Our analysts expect that there will be about 3% constant currency growth in FY24 and that
04:59 should recover to 10% kind of growth in FY25.
05:03 So once the FY24 is over, there are a lot of positives because of these new deal wins.
05:09 They are focusing on improving the operating profile margin and there they have a lot of
05:15 pricing.
05:16 These new orders are coming in at a little higher in their pyramid of margin.
05:21 So these automation related or generative AI related projects, they will improve the
05:27 margin in the portfolio mix.
05:29 So we think that these orders will also improve the utilization going forward and margins
05:34 are expected to improve by 300 basis points afterwards.
05:38 As we know, they are fantastic management, they generate a lot of cash, almost 96% of
05:43 the cash is free cash flow and that is shared in the form of dividend and the buybacks by
05:48 all these IT majors.
05:49 So we have lowered our target but we still keep ad rating on Infosys.
05:55 We think that around lower levels one can accumulate it and 1450 is our target based
06:01 on June 25.
06:03 So a low probability event has happened and because of that guidance has been cut.
06:08 At lower level, we will be buying companies like Infosys.
06:11 We continue to like other majors like TCS.
06:14 These are relatively safer bets in your portfolio.
06:18 And as you mentioned, the mid cap and small caps are actually performing quite well.
06:22 We had come out with a report on Zensar at the beginning of the year around 200 rupees
06:27 and it has done fantastically well.
06:29 So there are pockets of areas in IT mid cap where you can look for better opportunities
06:35 compared to large caps.
06:36 These are for the institutions where if you want to put large money to use, you can use
06:40 these stocks.
06:41 Otherwise, for retail investors, there are opportunities in the mid caps, especially
06:45 in the product space.
06:46 There are companies in the product space which are doing quite well, phenomenally well and
06:51 that's where retail investors should focus on.
06:53 Right.
06:54 So that's with regards to where IT as a space goes.
06:57 Moving on, the banking names are in focus as well, Devash, because clearly what everyone
07:03 has been of the opinion is that for Nifty to get to that 20000 mark and sustain above
07:09 that participation of IT as well as banking majors is absolutely crucial.
07:13 IT, I don't know how much it will contribute from here on taking the numbers into consideration,
07:19 but how are you viewing the banking space so far with the run up that we've already
07:24 seen?
07:25 Banking is the maximum opportunity, the best opportunity we have in the financial space
07:32 right now.
07:33 In fact, in the market, as you know, we have been quite bullish on the financial space.
07:37 It is about 40-45% of the index and it should be the part of every investor's portfolio.
07:43 The kind of numbers and the growth opportunity they present are phenomenal.
07:49 First, in the PSU banks, the numbers are coming out of the PSU stable.
07:56 I think there is still a possibility of re-rating from here.
07:59 The numbers are quite phenomenal.
08:02 Apart from other private sector banks where we have been bullish for longer term, there
08:07 also quite a bit of growth has happened and valuations have tempered down.
08:12 So there also opportunity lies.
08:15 Another opportunity is there in the wealth management space and other non-lending financials
08:23 like asset management companies, registrar companies and other stock market players,
08:31 depositories are available in the financial space.
08:34 So I think these are the spaces where we will see a lot of opportunity to invest and grow
08:39 from long term.
08:40 So PSU banks, private sector banks and non-lending financials, all these three sectors, I find
08:46 a lot of opportunities.
08:47 Right.
08:48 So that's with regards to where banking as a space goes.
08:53 Now, let's talk about a few other names which are in focus today.
08:56 One is India Mart.
08:57 On the back of earnings as well as the buyback that has been announced, what would you advise
09:02 investors to do with India Mart?
09:04 So the results were there and it was fantastic.
09:08 About 78 percent growth was there at 83 and they also approved a buyback of about 500
09:14 rupees, a 500 crore buyback.
09:17 It's about 12.5 crore shares.
09:20 A premium of about 4000 rupees, 30 percent premium over the CMB.
09:25 The revenue has grown by 26 percent at 282 crore.
09:29 So it's a small buyback compared to the equity, but it shows the intent and the growth which
09:36 is possible in this space.
09:37 So those who are invested in the company can continue to remain invested.
09:43 I think the future looks good there.
09:45 Other areas where technology is playing a space in this platform business, earlier they
09:51 were quite expensively valued, but these kind of return of cash to the investors give a
09:58 lot of comfort to us.
10:00 Right.
10:01 Moving on, United Spirits reported numbers.
10:03 Firstly, what do you make of the quarter and what's the roadmap ahead according to you?
10:09 Right.
10:10 So I have to look at the numbers in detail.
10:14 I haven't gone through them in detail, but overall, the area where we are continues to
10:21 remain bullish is this consumption area where the lifestyle changes are happening and the
10:27 more social acceptability of all these habits are going to go through an S curve.
10:35 As we become more prosperous, the disposable income increases, the traditional expenses
10:44 on roti, kapda, makan will move to consumption side and that's where when an aggressive management
10:49 and a sector meets, there could be a lot of growth opportunity.
10:53 Current prices, they may look a little expensive, but you will have to pay a top-notch dollar
10:58 for acquiring these companies and holding them for longer term.
11:02 So my view remains bullish.
11:04 I need to study the numbers in detail to come out with an opinion.
11:09 Right.
11:10 Moving on, Tandla Platform is seeing some smart moves on the back of earnings as well.
11:15 The profits have jumped almost 35%.
11:18 What is your view because HDFC Securities has been positive on this counter as well?
11:23 Yes, so our institution team is positive on the counter and they have upgraded their target.
11:29 So Tandla is expected to witness a growth acceleration.
11:33 Basically, it will be led by the revival in the enterprise business.
11:38 There, they are seeing a lot of uptick in volume.
11:41 The ILD prices have been high and as we know, UPI and OTP related business, the transactional
11:48 SMS traffic is continuing to go through the roof.
11:52 If you see the number of UPI transactions and led by the SMS, which we see in a lot
11:59 of transactions, that business continues to give a lot of growth to Tandla.
12:04 They have about 30% increase in the prices in their ILD business.
12:09 They have done some good acquisitions and these client-specific issues are going to
12:13 be handled by them, their acquisition of value first, their also turbo acquisition.
12:21 All these platform acquisitions will help them come out with the products which are
12:25 into anti-phishing side, which are into other platforms that will help the company grow
12:31 forward.
12:32 So we have a buy rating on the company and our analyst put about 20 times FY25 earnings
12:41 and their target is 1350 on the counter.
12:44 So we have a buy rating, so I think investors should continue to hold this company and if
12:49 there is any decline in the prices, in correction you should keep accumulating this stock for
12:53 a target of 1350.
12:54 Right, so that's with regards to Tandla.
12:57 Moving on, the last stock I want to highlight is with regards to Asun TV.
13:02 If you see in terms of the stock, we are seeing some good moves in today's session.
13:06 The stock is trading nearly at its day's highs as well and you have seen a massive uptick
13:12 through the IPL as well in the first quarter.
13:16 What's your view on that one?
13:20 So we have been bullish on the company.
13:22 These are the companies which have a lot of value in their businesses.
13:27 The growth was not there and now we are seeing a lot of growth coming into these counters.
13:32 We were on, in fact, last December, the Diwali picks, we have recommended this company with
13:40 a higher target of around 624 and it struggled for a while and now we see that it is picking
13:49 up space in the market.
13:51 The market has recognized the value they have.
13:55 The reason for this, I think, has been the recent uptick in the OTT space, the volume
14:03 growth in the advertising space.
14:05 They have very huge cash.
14:07 I think last I remember almost 1100 crore cash was there in their balance sheet, which
14:13 gives us the downside on the, it gives support on the downside.
14:17 So the programs in Tamil, Telugu, Kannada, Malayalam, all these are getting traction.
14:23 They have also launched a Bangla and Marathi channel, which is gaining a lot of market
14:28 share.
14:29 So we think that the stock is still quite attractively valued.
14:34 Our analyst estimates about 15 times, kind of, FI24 earnings, then the target of 624
14:43 is there for us.
14:44 So there is still some room, right now it has come up quite well in recent past.
14:49 If you see the last few sessions, it has picked up from below 500 to now 540, 550 levels,
14:57 but still there is some room to go there.
15:00 We have a target of 624 for this counter.
15:03 So those who have invested into this company, I advise them to continue to gold.
15:08 Right.
15:09 So these are a few of the names that we should be watching out for as well.
15:12 Thank you, Devaj, so much for joining us on the show and sharing the views.
15:15 So clearly, a lot of movers and shakers in trade today, but markets are nearly at the
15:20 day's lowest levels as we speak.
15:22 Let's quickly take a check.
15:23 SBI, which is one of the top gainers in terms of Bank Nifty as well, but the breadth in
15:29 terms of Bank Nifty has been in favor of the declines as we speak.
15:34 If you see in terms of Nifty 50, we've maintained those levels of 19,800, no major moves there,
15:40 but L&T, the top gainer on the back of the buyback that could be announced.
15:46 That's what the company is meeting for.
15:48 Devis Laboratories, SBI, Apollo Hospitals, as well as ONGC are a few of the top gainers.
15:53 Interesting view in terms of the losers, wherein you have the top three which are coming in
15:59 from the IT majors, which is Infosys, Etc.
16:02 as well as Wipro.
16:03 Rolands is also seeing profit booking in today's session.
16:06 Yesterday, in fact, in that last half an hour of trade, we were seeing longs which were
16:10 being unwound for Infosys as well as with regards to Reliance Industries, which was
16:15 clearly giving us an indication that we would not see that 20,000 mark soon.
16:20 And you have HUL, which has been trading under pressure on the back of the weak volume numbers
16:24 that have come in for the first quarter.
16:27 Moving from there on, Persistent Systems, KPIT Tech, both these counters trading under
16:31 pressure, Polycap, which did see a smart run on the back of its earnings, is now seeing
16:36 some bit of profit booking in today's session.
16:39 And you have Vasarigama, which is down in trade.
16:42 India Mart, we already spoke about it.
16:44 Urcon is seeing some smart moves in today's session, 5% to 6% of an up move.
16:49 So clearly, a day of stock-specific action.
16:51 20,000 seems to be again a far-fetched dream, but it seems that that number will come in
16:57 closer towards the July month expiry, and that's what traders and analysts are anticipating
17:04 so far.
17:05 That's all that we have on this session.
17:06 Thanks for watching.
17:07 It is a day of heavy news.
17:09 You will get to see a lot of management interviews on BQ Prime today.
17:13 So please stay tuned.
17:22 [END]
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