Like stocks like Sterlite, the Bajaj twin: Deven Choksey, KR Choksey Investment Managers

In a chat with ET Now, Deven Choksey, MD, KR Choksey Investment Managers, says one will have to wait and see how exactly it pans out in the IT space. Edited excerpts





ET Now: Just analysing and discussing all the earnings that went by in the two that actually stand out, Tech Mahindra and the margin disappointment thereof and InterGlobe Aviation which again has missed street estimates. What has been your assessment on how one should approach these stocks now?

Deven Choksey: I believe that the challenges are going to continue for most of the IT companies, particularly when they are up for changing the business model. The larger amount of thrust is required to be given on the SMACs and that is where I think most of the companies are operationally aligning themselves to this particular requirement of the markets. To my mind, this is likely to create some longer period of challenge that they are facing. It would take little longer, till the companies come back on the track and start delivering on to the SMACs platform requirements that most of the global customers are asking for.

That is where some of the frontline IT companies business model need some changes. Companies like Infosys, TCS remain relatively more stronger because they have already aligned themselves to this particular change which is happening in the global markets. Not too sure if the rest of the front line IT companies have made enough amount of efforts, are probably having straightened their entire operations to meet this requirement, not too sure on that aspect. So one will have to wait and see how exactly it pans out.

InterGlobe aviation, definitely the profits remain under pressure and the margins are under pressure. Again, on one side you have a larger focus on the cost management, on other side the market growth is emerging. The company should be performing well. What we hear now is that the A320neo is likely to get little delayed and that is not good news

So, I would like to believe that the company would probably struggle for some period of time in the market place though operationally they may probably start aligning their work and produce little better performance going forward in the subsequent part of this financial year. So let us wait and see how exactly it turns out to be in subsequent part of the financial year because the volume growth definitely as far as the seat occupancy is concerned is definitely in their favour and the cost structure is coming down. So hopefully, the company should be producing better performance going forward.



ET Now: S Dilli Raj and L Sivaramakrishnan, former Chief Financial Officers at scam-hit First Leasing, have been arrested on account of what has happened in the past with the company’s accounts and the fraudulent inspection thereof. But what is your sense on whether or not we are likely to see this sentimental knee jerk reaction in the stock and if it does come about would that be a buying price then?

Deven Choksey: I would think that the management of the company should come out very clearly and say and talk very clearly about the quality of the book that they are carrying. When such kind of event happens, I think obviously you always have a doubt in the mind that whether the quality of the book is proper, particularly because you are in a lending business. What kind of provisioning that you have done or not done these are some of the issues which are required to be very clearly spelt out. If they do not spell it out clearly, then probably they would be refraining from infusing the confidence within the investors.
The fact is that these companies are quoting at a reasonably high valuations. To my mind, again, if the valuation stays high, then probably markets do not have a chance to give some kind of discounting such negative news. In fact, market would be uncomfortable in keeping the valuation at a higher levels, so that is where I think one is little vary about. Of course, I think as I say that the management should come out and very clearly spell out the quality of the book that could possibly disturb the confidence in minds of investors.

ET Now: Anything that you like this earning season in terms of earning delivery which you will be comfortable investing into or recommending your clients to make an investment in?

Deven Choksey: Well I think few of the individual names which have probably come out with good set of numbers and I can talk only from the list that I think we are tracking. We have been liking this particular company, the Sterlite Technologies and the way in which they are basically positioning their model in the business, it sounds quite appealing.

On one side, they have demerged the power business which is highly capita intensive business is being demerged, now the balanced business which is left out in the company is not only the telecommunication product but a complete bunch of solutions that they provide to the entire space.
They have kept it within the company. It is basically growing at 30% CAGR so I probably like growth models, 30% CAGR growth model is quite compelling and that is where I believe that this company could possibly show relatively better performance going forward. They have been improving the standard on performance which they have shown in the telecommunication business.

On the year over year basis if you look at it, the growth has been quite significant and I believe that the company could possibly march forward on this particular track, so we like this company.

Similarly, the Bajaj twins – the Finserv and the Finance, both have come up with good results, particularly Finserv we like more because in the insurance business they are the first company which has basically made a breakthrough with profits and they have been sustaining that particular profitable path even though the insurance business has grown at a single digit rate of growth.

Now the insurance business is growing at double digit rate of growth and the company is showing better amount of growth prospects here after. So certainly we like the insurance business particularly within the Bajaj Finserv and that is where I think we believe that the company could make a difference within the market place.
So yes I think selectively I can keep on talking about few more names but selectively, individual companies which have performed better in this season and are showing better performance potential I would think that they are the ones one could possibly look at buying into the portfolio in the markets during the corrections.