Alok Agawal of Motilal Oswal and Rajen Shah of Angel Stock Broking pick stocks that they would put a 'buy' call on, and stocks that they would gladly give a miss.
Excerpts from CNBC-TV18's exclusive interview with Alok Agarwal and Rajen Shah:
What went wrong with the numbers of Mercator Lines?
Agarwal: We have no complaint about the management, we like the stock and the company. There were some dry-docking expenses, which we thought would have amortized over a period of four quarters. But they have debited the entire amount in one quarter. That is the only miss; other things are in line with our expectations.
Tell us why you like Gujarat Alkalies?
Agarwal: Their PAT is more than what we had expected. The topline was more than our expectations too, but margins were slightly low. They had slightly higher other income because of some CENVAT credit, which has boosted their PAT.
We believe that going forward this stock should do well because they have expanded capacity of caustic soda and poly-aluminum chloride both of which are now in operation. That should add to their topline and result in lower cost per unit of production. Overall that will lead to better margins and better PAT going forward. We like this stock very much.
Is Maharashtra Seamless a hit for you as well?
Agarwal: It is a big hit. They have done very well. They have exceeded our projections in-terms of topline, in terms of EBITDA margins and clearly in terms of PAT. We have also upped our FY07 - 08 numbers. This is going to be a good stock.
They have higher capacity utilization from their higher diameter seamless pipeline, which is operating now at almost 80 per cent capacity. The management is also doing very good job.
What do you think about Arvind Mills because that stock has been under pressure?
Agarwal: The company's performance has been very badly hit due to weak denim prices and I think that the net profit are slum significantly and somehow I was not at all very comfortable with this company's performance and the management has proved that it is the management on which one cannot rely on a sustained basis, so certainly it is in the misses.
You thought Bata's numbers were a hit?
Shah: Yes, certainly, the net profit has doubled due to lot of restructuring, which has taken place in the company over the past two years. Also a lot of new products have entered the market with the new designs and the latest trends, plus even the retail outlets of Bata India have taken a significant outlook change over the past one year.
So net-net things at Bata look to be improving a lot, and in the coming quarters also I expect Bata's numbers to keep on improving. The land development plan at Batanagar would also start taking shape maybe from the last quarter onwards of this year, so things are looking great at Bata and I think that over a longer timeframe this stock should give you a decent returns.
Aside of Arvind Mills, the other set of numbers you were not quite happy with was Tata Teleservices (Maharashtra). It fell short of your expectations?
Shah: Yes, certainly, about a year back the management said that the company would be turning cash positive by 2006. But I think it will take a long while for the company to actually come to profit, maybe, I expect the company to report the profits in 2008-09. Infact the accumulated losses also are over Rs 1200 crore (Rs 12 billion) or so.
The only reason why this stock is quoting at these levels is because a market-man expected it to finally get merged with Tata Tele, a parent company, so that is the only way out of Tata Tele, otherwise I don't expect any kind of numbers improving even in the coming quarters.
But you were happy in Rajasthan Spinning and Weaving Mills' numbers?
Shah: Yes, the company has been improving its performance for the last two years. This year in the first quarter while the revenues were up 19 per cent; the net profit went up by 51 per cent because of the good exports, which were up 50 per cent.
The other thing is that the company's new power plant, thermal power plant of 46 megawatt will start operations in the last quarter of 2007.
So obviously the power cost would come down significantly and we expect power savings to be to the tune of almost about Rs 18 crore (Rs 180 million) on the net basis. So that along with the spindle capacity, which is being expected to be announced from 240,000 spindles to 400,000 by 2008. That should help the company to post very good numbers in the coming year.
Besides that on a fundamental basis, this year the company should report earnings of about Rs 15 and the stock is quoting at around Rs 95. So it is quoting at about six and a half times the earnings, so I think that it is a Rs 1000 crore (Rs 10 billion) company. However, unfortunately the stock is a bit illiquid and I think that sooner or later, this stock is going to get noticed by market men.For more on markets & business, log on to www.moneycontrol.com
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