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    Vivek Mahajan of Aditya Birla Money on 2 sectors to exit in 2018

    Synopsis

    “The low base and shift from informal to formal sector will help notch up 20-22% earnings growth.”

    ET Now
    Talking to ET Now, Vivek Mahajan, Aditya Birla Money says it is time to exit PSU banks and engine companies like Bosche, Force Motors as EVs are going to come in sooner than later.

    Edited excerpts:


    You are talking about 20 to 23% earnings growth over next two to three years. What is making you so optimistic and what are the factors you are focusing on for such earning growth to happen over a period of two to three years?

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    First, over last one year the country went through some massive disruptions -- demonetisation, RERA, BS III, BS IV affecting auto sector and of course GST. The pain point to the industry was humongous. Thus the base has become small and a lot of companies, particularly the Nifty 50, have seen significant pressure over last two years. Tata Motors continues to report hedging losses quarter after quarter which is not going to be there permanently.

    The base for the pharma space -- including Sun Pharma, Lupin’s or Dr Reddy’s of the world -- has become significantly small. For that matter, Axis Bank, SBI had been reporting degrowth because they were taking a lot of write offs. So, the base has become small, the impact of disruption was there in the market place big time.

    As we go forward, we believe the impact of this disruption has started to fade away fast. Our ake is that after these major disruptions, the government does not have a headroom to come out with major disruptions over next 18 months. Otherwise, 2019 will become a question mark for this current government. Our take is we should be seeing a blue sky scenario, the low base will also be contributing and not to forget shift from informal to formal sector as it gathers momentum will also do the trick. Our take is that 20-22% earnings growth is very much on cards.

    Are you guys at all worried about HNI clients looking at bitcoins because that is giving such phenomenal returns. If not bitcoins, other kinds of cryptocurrencies also seem to be gaining momentum?

    They remain a speculative investment area. A lot of money is there in the system. The way this cryptocurrency has gone up, shows madness in the marketplace. We have been advising our clients to stay away from this. Accidents can occur and it will be not healthy for the individual’s portfolio. It is better to play safe at this point of time rather than be sorry.

    As we head into the New Year, you have mentioned a couple of stocks and sectors. What is the one big theme you are watching out for in 2018?

    We remain positive on metal and chemical space. Chemicals have seen a phenomenal run up on account of China trying to clean up their system. We believe the pain point in China will be beneficial for the country like India which has got huge domestic demand. We were impacted by the dumping from China. So the government is trying to protect the industry by announcing anti-dumping duty which creates a buffer and the multinationals have been looking for an alternative to China and for that there is no better place than India. In chemicals, we are looking at two stocks significantly at this point of time; one is Aarti Industries Ltd., the other one is Balaji Amines.

    As far as Aarti Industries is concerned, they understand the chemistry very well. They are focussing on Toluene, benzene and chlorine and they have nearly 125 products. They have been getting into complex products. Focussing on that creates entry barrier in this space. Nearly 50% of the turnover is coming from exports. They have got big customers and has been spending around Rs 300 to 500 crore every year on capex. We believe the top line should be growing at a rate of anything between 16-17% and 20% over next two to three years while the earnings should be growing at 25% . EPS last year was something like Rs 37 and that could be going up to Rs 60 odd by FY19 stock trades at 15 times one year forward. We believe this stock has a potential to go to Rs 1150-1200.

    The other one is Balaji Amines. Again they understand the space in which they operate very well and the plant is in Sholapur. We recently went to Sholapur for the plant visit and meeting the management. They focused on Amines and derivatives. Rs 60 crore worth of capex has already gone on this and should take the turnover from something like Rs 670 crore last year to Rs 1100 crore next year.

    Last week there were some positive developments. They have got 90 acre of land in Maharashtra and they have also got a mega project status award by the government. Without taking that into account, the top line should go up from Rs 670 crore to Rs 1100 crore while the EPS should be going up from Rs 26 to close to Rs 50. Again, this has a potential to go up by 30% to 40%.

    What are some themes that you are a bit underweight on and where you see a bit of risk as far as 2018 is concerned?
    If you are talking about themes. one is, this year we saw some support coming to state-owned banks. We believe that was a step in the right direction but this upside should be used as an exit opportunity. We believe they will continue to lose market share to private sector banks which remain aggressive in the marketplace. Other than that, we are also advising the clients not to touch anything which has anything to do with engine because electrical vehicles (EVs) are more or less a certainty. When it comes in, any business which has got anything to do with engine it will be the worst impacted. So may be Bosch, Force Motors or for that matter some smaller companies including Setco or forging companies could be impacted. Use any upside to exit out of that space.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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