Watch the interview of Mayuresh Joshi of Angel Broking who shared his readings and outlook on specific stocks and sector & Hemant Rustagi of Wiseinvest Advisors answered few personal finance queries.
Below is the verbatim transcript of Mayuresh Joshi's interview with CNBC-TV18:
Essar Oil & Reliance Industries
Essar Oil is not under coverage. The high debt levels clearly causing a dent in terms of how their cash flows are panning out; gross debt close to Rs 25,500 crore and if you look at the net debt, close to Rs 20,000-23,500 crore. The kind of valuations it is currently deriving, it is factoring in a lot more. So what probably happens with a stake sale which is being circulated in media, again that is very speculative, but clearly the Gross Refinery Margin (GRM) are something that has held up for Essar Oil. But for it to return into profitability, GRM in excess USD 10 is something that the market analysts are looking at. Even if it sustains between USD 9-9.5 mark, it will not be enough to cover the kind of interest payments that Essar Oil makes. So, high interest payments, high levels of debt on the books and valuations appearing rich. When it comes to MRPL. our take is that the upstream companies and specifically the larger ones something like Reliance industries which came out with a good set of numbers is something we prefer and continue to like on declines. Clearly the kind of expansions that Reliance is making on the core business on petchem and refining, it should hold Reliance’s numbers up FY17 onwards. So, over the next 4-6 quarters, you will see substantial improvement in earnings coming through for Reliance. So,this is something that I like but MRPL at this of point, I will clearly stay away from it.
YES Bank 's numbers were quite decent in our opinion. The net interest income (NII) growth in fact surpassed our own expectations. The net interest margin (NIM) came on the higher end of the band at 3.3 percent and again if the management stays true and if the retail advances grow, the NIMs should expand by another 10-15 basis points over the next few quarters. Having said that, asset quality more or less has been maintained by the bank and the kind of provisioning that it does in terms of PCR at 72 percent is quite substantial. So you have built in credit costs in excess of 77 basis points for the next few quarters and that could probably entail that whatever softness happens in asset quality is more or less covered. So, in our opinion, at the current valuations the stock is still looking attractive. So, hold on and our own target at the next 12 months stands on Rs 993.
One should hold on to JSW Steel though I think we are going through a commodity down cycle and clearly that is getting reflected in terms of how the realisations are panning out, lower volume growth happening for most steel companies JSW Steel not excluded. So, the numbers are
not going to be encouraging for Tata Steel. even for JSW Steel. The high iron ore cost inventory is still going to play truant on the balance sheet for the next couple of quarters. It is only second half of this financial year that you might see some amount of recovery and the fall in prices might start getting reflected in a better way on to the EBITDA margins of these companies. However, with the kindof capex plans that they have got, Rs 9,000 crore odd capacity expansion in Vijaynagar and again I think the iron ore concerns remains an overhang. The debt on books is quite high for JSW Steel, so how they do their tender servicing is also going to be interesting. So, I think one can ride this bad wave and hold on for two to three years.
Tata Motors & Tata Steel
In Tata Motors. the Chinese slowdown and the volume de-growth in the Chinese markets have impacted the earnings estimate and a lot of analysts have cut down earnings estimate based on de-growth expected out of the Chinese market. However, I think at the current juncture valuations are appearing extremely attractive. Clearly there are two or three positives coming out, I think the Chinese joint venture (JV) that Tata Motors has entered into, they will start reflecting better margins and the operating leverage benefit should start coming through over the next few quarters."
He further added, "The new launches that Tata Motors has got and though there is intense competition within the Chinese markets and you are looking at discounting happening, again the new launches will hold JLR numbers in good state specifically in relation to the Chinese markets and the other markets have been holding up. Domestically our own expectations in terms of medium and heavy commercial vehicles (MHCV) volumes growing in excess of 20 percent with the kind of trend we were seeing would hold true with the capex recovery is on track.
"Clearly the stock is factoring in cut down in both JLR volumes, standalone passenger vehicle (PV) volumes, MHCV volumes, again higher marketing expenses because of new launches, higher depreciation expenses because of new launches but valuations simply is too attractive. So, good time to enter into Tata Motors in a systematic manner over the next few months.
Tata Steel has its own problem, I think commodity cycle has turned for the worse, demand supply situation within the Chinese market and generally on the global scene doesn’t look good. IN the last quarter Tata Steel Europe’s margins on EBITDA to tonne basis well at USD 44, South East Asian markets are seeing the glut coming through in terms of Chinese exports and the Russian exports coming through.
So realisations are expected to remain soft, even the high iron ore inventory of 1.5mt would still play truant on the balance sheet of Tata Steel. So, unless the investor has a very long-term view of more than two years, three years I think it probably would not makes sense but next two to three quarters will be extremely sluggish and soft for steel companies including Tata Steel.