A lot of investors in the first two days of our marketing trip in Asia were bit
taken aback by the extent of slowdown suggested by the micro data points,
with impact now being seen in power, coal demand (after a prolonged slow
down in industrial products such as cement). While a few investors felt that
India has probably achieved the inflation target, the key related question was –
at what cost? The next worry for most seems to be, what would happen if
foreign investors were to start selling from hereon?
Other stock specific questions were
• Why is L&T not at INR 1200/ sh (vs INR 1428/sh)
• Do we think that utilities like Coal India / NTPC can even correct 5-
10% from here, given the demand slowdown? What are must buy
levels? and
• For investors with a longer horizon, the key debate was which
companies can weather the downturn?
What do Investors own in the Infrastructure sector?
Surprisingly very few hold Larsen & Toubro (Buy, INR 1428) our top infra pick
and are underweight the large caps in the sector, with ownership being either
in cement names or mid-caps such as Cummins India (Hold, INR 456) and for
some even the likes of Crompton (unrated) and Voltas (unrated). Amongst
Utilities it is either PowerGrid (Hold, INR 109) or NTPC (Buy, INR 142) with no
large holders in Coal India (Buy, INR 291) or BHEL (Buy, INR 187). For few
BHEL is still a short - but we find the tradeoff on cost of the position vs fair
value estimate is not that attractive. Despite L&T being low in ownership, the
stock remains on the radar for everyone with buying levels around INR 1200-
1250/sh as they feel a large company like L&T has a lot of levers to reduce
earnings cyclicality and the near term earnings weakness is well known.
What's our message?
At our end, we are cautious in our approach given the macro headwinds and
recommend investors buying into companies that (a) can weather downturn
through entry into new businesses/markets (b) have a strong balance sheet,
(c) can show an earnings CAGR above 12-15% under the scenario of GDP
growth continuing at low levels, (d) are trading at valuations cheaper to market
on a relative basis and/or offering a dividend yield of over 5%.
Our preferred picks are L&T, UltraTech, Coal India, NTPC, Shree Cement and
Thermax.
��
taken aback by the extent of slowdown suggested by the micro data points,
with impact now being seen in power, coal demand (after a prolonged slow
down in industrial products such as cement). While a few investors felt that
India has probably achieved the inflation target, the key related question was –
at what cost? The next worry for most seems to be, what would happen if
foreign investors were to start selling from hereon?
Other stock specific questions were
• Why is L&T not at INR 1200/ sh (vs INR 1428/sh)
• Do we think that utilities like Coal India / NTPC can even correct 5-
10% from here, given the demand slowdown? What are must buy
levels? and
• For investors with a longer horizon, the key debate was which
companies can weather the downturn?
What do Investors own in the Infrastructure sector?
Surprisingly very few hold Larsen & Toubro (Buy, INR 1428) our top infra pick
and are underweight the large caps in the sector, with ownership being either
in cement names or mid-caps such as Cummins India (Hold, INR 456) and for
some even the likes of Crompton (unrated) and Voltas (unrated). Amongst
Utilities it is either PowerGrid (Hold, INR 109) or NTPC (Buy, INR 142) with no
large holders in Coal India (Buy, INR 291) or BHEL (Buy, INR 187). For few
BHEL is still a short - but we find the tradeoff on cost of the position vs fair
value estimate is not that attractive. Despite L&T being low in ownership, the
stock remains on the radar for everyone with buying levels around INR 1200-
1250/sh as they feel a large company like L&T has a lot of levers to reduce
earnings cyclicality and the near term earnings weakness is well known.
What's our message?
At our end, we are cautious in our approach given the macro headwinds and
recommend investors buying into companies that (a) can weather downturn
through entry into new businesses/markets (b) have a strong balance sheet,
(c) can show an earnings CAGR above 12-15% under the scenario of GDP
growth continuing at low levels, (d) are trading at valuations cheaper to market
on a relative basis and/or offering a dividend yield of over 5%.
Our preferred picks are L&T, UltraTech, Coal India, NTPC, Shree Cement and
Thermax.
No comments:
Post a Comment