Investing in Mannapuram Finance, Hero Motocorps: Sandip Gupta, Motilal Oswal Securities

In a chat with ET Now, Sandip Gupta, Motilal Oswal Securities, remains very positive on Nifty for next three months. Edited excerpts

ET Now: What to your mind is spooking the global markets today considering it was a status quo policy from both the BoJ as well as the Fed?

Sandip Gupta: We feel the markets are just reacting to the global markets specifically to the Bank of Japan’s move. We see Indian markets to be a little different. As of now, we just have one more global event which is Britain’s referendum. So once that is done, we should again come back and focus more on the local and domestic events. So over a period of two or three weeks, we expect the markets to remain a little volatile due to global events but then it should consolidate in this range and should move up again. We remain very positive overall on Nifty for a month to two, three months' time.

ET Now: Tell us what are your bullish biases in the market right now? What are the sectors that you are advising to your clients to buy into at the current market levels?

Sandip Gupta: The markets as of now are more stock specific. When you talk of sectors, we feel that NBFC which has more to do with retail growth which is the basic theme where the consumption story continues on the retail side. So based on this theme, we have two ideas we are very bullish on as of now; one is a small NBFC player Mannapuram Finance. This company is basically a gold loan player but now it is revamping the whole business strategy and diversifying into microfinance, housing loan, CV loans and also loan against property business as well.

So this non-gold portfolio business is actually growing at around 80 per cent plus kind of growth and we expect it to continue at the same rate over the next two years which is from FY16 to FY18. The gold portfolio in the same time should grow by around 14 per cent. So on an overall basis, we expect this company earnings to grow by around 26 per cent CAGR over the next two to three years.

The non-gold portfolio growth which is at around 80 per cent will take the book of non-gold book to around 25 per cent which is as of now at 12 per cent. And in this we also expect that during these two years we will see the ROEs move up because of high leverage and operating leverage coming into play. So we expect the ROEs which are at around 12.5 per cent to move to around 17.4 per cent by FY18.

The microfinance business is a very high profitable business when compared to the peers. The NIMs are in the range of around 3.75 to 4 per cent for this company and hence as SOTP valuation, we value the microfinance business at three times book and gold portfolio or the gold loan book at around 1.8 times and the housing finance business at 2 times. So based on the SOTP valuations, we have a target price of Rs 75 for the stock. This remains one of our best picks in the NBFC segment as of now.

The other stock is Hero Motors; we like this stock very much at the current scenario. 70 per cent of the motorcycle business is coming from nine top agricultural dependent states so as predicted by SkyMet as well as IMD we expect the monsoons to be pretty normal this year and could be also above normal. So this normal monsoon should increase the agri production and also the farm income in the hands of farmers. Also, the current government has put of a focus on a long term target of doubling the farm incomes so this all should drive good rural consumption and Hero Motors remains one of the best stock to play on in this scenario. We value the company at around 17-17.5 times and we have a price target of 3634 for the stock. These are the two stocks which we are pretty bullish at current point of time.