Two-wheeler stocks have started moving up. What are your thoughts as far as the two-wheeler pack is concerned, starting with Hero. The mid-tier, small ticket two- wheelers volume got impacted because rural India was not doing very well. Is that reversing now?
For two-wheeler stocks to do well, first of all, the performance of the whole industry has not been great right and has been an outlier in the segment primarily because of reasons which are not particular to the two-wheeler industry.
Now coming to the category as a whole, the category is seeing changing dynamics. More and more new kinds of products are getting introduced and that is the whole ball game and that is how the future is going to shape up. In the near term, probably a couple of months from now, we might see some improvement in volumes and that can essentially help the two wheeler industry. But having said that, from a medium to long term perspective, it is going to be how the product profile for these companies shapes up and that is going to be the more critical factor.
As of now, as far as Hero Motors is concerned, there is value there but some bit of improvement in performance and number uptick is needed for that value to be realised.
What about CV ancillary? commentary said that next year they would cross their previous peak in volume terms. What are your thoughts on the CV space purely on the auto ancillary side of the story?
From a CV auto ancillary space perspective, it is a tricky zone. If we look at the PV ancillary space or even a two-wheeler ancillary space, there are names which are of fairly large scale and size and that is the advantage that they have. Whereas, when we look at CV ancillary space, the challenge with the CV ancillary space is primarily with regards to kind of margins that we tend to see. Of course, we can always look at forging companies which can benefit but overall it is the margin profile which is a challenge.
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But having said that, we cover companies like we have coverage on companies like automotive ancillaries. These are companies which can be good long-term play on the CV cycle. I would say that we are quite bullish on CV as a cycle. If we look at the players in the space, it is a fairly concentrated market of two players. They have huge bargaining powers with the suppliers and so will be a little more focussed in terms of what they want to buy. Otherwise, the whole CV cycle still continues to look quite attractive to us.
From the midcap-smallcap side of the basket, what are the ideas you guys are researching right now?
Let me be very straightforward on these accounts. Sector wise, we like banks as a sector, we like capital goods or industrials and then of course auto and consumer discretionary. These are the four broad sectors that we like. When we look at banks, we are definitely looking at the tier two banks, the likes of and DCB, banks which make an interesting case and even a bank like Ratnakar Bank Ltd.
These are very interesting names and I think there is a case that these companies can deliver good long-term returns from the current levels. If you look at last quarter’s numbers, even smaller banks like
delivered a very strong set of numbers. So definitely there is a case to look at these banks at this juncture.
If I were to look at industrial space particularly, we are very focussed on defence as a space. Again there are a wide range of companies in the defence space. If we look at Bharat Dynamics, which reported numbers last week, I would say that there were a good set of numbers. If we look at consumer discretionary as a category, hotels as a space are still very interesting to us.
Q2 is the weakest quarter for the hotel space.
reported a decent set of numbers and Q3 and Q4 are the strongest quarters. We should see Q3 numbers picking up quite well. Profitability could be very strong in the hotel space. These are areas which we are very much focussed on and these categories have delivered good returns and the returns could sustain even from these levels in the next couple of quarters.
What are your thoughts on cement?
Cement as a sector is all about timing. When you see that the price hikes are on the anvil, that is probably the time one should enter cement stocks. At this juncture, I would say that there are two plays which are happening in the cement sector. One is looking at the price hike and probably a consolidation theme can play out in the cement sector. These are the two broad themes which can play out in the cement sector.
Price hikes are very likely to come and I would say that typically the price hike time frame from November to February will be the time frame when whatever price hikes have to happen will happen and post that, I do not think there will be much activity there.
The second theme that we could be looking at will be the consolidation theme. We have had the entry of a major player and there could be more consolidation on offering. So, small scale cement players can be interesting companies to look at, be it JK Lakshmi Cement or Orient Cement. They have decent size and are fairly efficient. will be the interesting plays. If we get both the themes in play which is consolidation as well as the price hike, good money can be made in the cement sector.