Continue to bet on largecap IT for now: Mayuresh Joshi, Angel Broking

In a chat with ET Now, Mayuresh Joshi, Fund Manager, Angel Broking, says Blue Star remains a top stock pick

ET Now: This week the big story is Infosys’s numbers which will come on Friday and ahead of those numbers a long-term stakeholder has decided to press the exit button?

Mayuresh Joshi: So if you look at historical trends on how Infosys has behaved before numbers, the expectations were very high over the past two quarters. It has delivered in the last two quarters and as for whether it will deliver going forward, the management is highly of growing its dollar revenues by 14 per cent however little bit less sanguine about the whole growth story in dollar terms and our own expectation is a muted 12-12.5 per cent growth in dollar terms. What this really means for Infosys is that the target of $20 billion in terms of top line growth that the management has set out to do is likely to be achieved. Client mining is happening, new client wins are coming through, the deals are happening at good margins. What happens with Q4 in terms of discretionary spending will be a big talking point in terms of management commentaries for the fiscal year ahead. So clearly, our own take is that in cross currency terms, growth should be pretty decent, not just for Infosys but for top IT companies in general. On a quarter on quarter basis, you have probably seen a 2.4 per cent rupee depreciation happening so if you adjust for cross currency hit GBP, if you look at how the Yen has behaved, you might see some amount of shave off in terms of APAC margins but our expectations are that there are more tailwinds rather than headwinds at this point of time with utilisation levels going up, attrition level stabilising and valuations being very reasonable compared to the last five years average's. So remain optimistic on largecap IT stocks for now.

ET Now: Some analysts feel Bharti can give a 20 to 25 per cent return in next 12 months. Can I challenge his argument by saying that Bharti has diluted its balance sheet a lot and the return ratios will not all be that favourable? The data growth which we have been talking about clearly is evident but the voice business is contracting?

Mayuresh Joshi: You need to understand a few pointers vis-a-vis Bharti; First) if you look at the voice traffic, it is increasing but the voice ARPMs are relatively flat or they are coming down even for this quarter. The voice ARPMs are largely expected to be around the 33-33.5 paisa per minute. If you look at the data side of revenue for Bharti, the data volumes again have been increasing quite significantly. The buyouts with Aircel recently and with Videocon a few weeks back, showed usability in terms of offering bandwidth in the 4G space had clearly challenged Reliance Jio but again the data realisations are going down, quarter after quarter.

Second, even if you look at the Indian EBITDA margins, clearly they are stabilising but showing a downward trend as well. As for the African business - with the kind of debt they have got in their books, they are clearly working on a deleveraging strategy -- are going to be a little bit constrained. So the kind of capex and the kind of network expenses that Bharti in particular and telecom operators in general need to do and have been doing, are going to take a toll on their ratios. So from a medium-term perspective, the return ratios do get hampered. You are still going to see stickiness happening in both voice ARPMs, in data revenues going down and in ARPUs, probably consolidating or relatively coming down on quarter on quarter basis.

Clearly from a long-term perspective, all these things might work out positively in favour of Bharti Airtel but will the stock perform from a medium-term perspective? My own take is that with cash flows not improving immediately, the markets are cognisant of this fact and yet the return ratios are going to take a hit with the kind of spectrum payouts they are doing. Even the 700 megahertz payouts are going to be a very interesting prospect to watch out for because with the kind of base prices that they probably get, bids for this one is going to probably increase Bharti expenditure as well.

ET Now: At five times book, we have argued in the past that Kotak Mahindra exactly is not cheap but those who made a case that Kotak Mahindra Bank is not cheap, I guess have really been on the wrong side of the trade for the last couple of years?

Mayuresh Joshi: Yes and the bank has performed both in terms of how their advances growth has been, how the asset quality has panned out and extremely strong metrics that a bank could require. So even in tough macroeconomic conditions, the bank did grow decently well in terms of their credit growth doing exceedingly well. Again the merger with ING is taking a little bit of time. The integration, the ramp up, the scalability is something ideally that a lot of analysts would probably like to witness and yes the kind of book quality that ING probably has in terms of the exposure at this point of time does create some amount of jitters when it comes to the consolidated earnings for Kotak Bank. However, in my opinion it is a fairly qualitative franchise. Iff investors are holding on to Kotak Bank at lower levels, they should continue doing so.

ET Now: What is the rationale behind liking Blue Star?

Mayuresh Joshi: If you look at the interpretation that the AC market is in India, there is a huge scope in terms of the expansion of their share in terms of market size as well as volumes. Secondly if you look at the cooling solutions, the room ACs, it has been increasing its market share and again the management expects the market share to inch upwards over the next few quarters. Third, in terms of input costs, we probably expect it to remain benign which means that the margin expansion can be quite evident and fourth, both in terms of top line and margin expansion, growth can very well be evident in the quarters to come. This quarter is going to be one of the strongest quarters for Blue Star. Looking at how the summer season is panning out, the kind of new models that it is probably getting into the market at this point of time and again the cash infusion from Blue Star Infotech will help to expand its balance sheet. We remain extremely optimistic on air conditioning manufacturers Blue Star being one of our top picks.