Tried and tested stocks like HDFC Bank, Glaxo Consumer are still dirt cheap: Mehraboon Irani, Nirmal Bang Securities

In a chat with ET Now, Mehraboon Irani, Principal & Head, Private Client Group, Nirmal Bang Securities, says Equitas, Ujjivan, Bharat Financial stocks will continue to fair well because virtually anybody and everybody who is powerful in the market is invested in one of these three. Edited excerpts


ET Now: Since we are talking about Bharat Financial and a QIP, we are talking about fund raisings out here. What about this space -- Bharat Financial, Ujjivan, Equitas? As of now, except Equitas, the others are still microfinance companies. They are doing some fund raising as well. What are your thoughts here?

Mehraboon Irani: Very positive I think. But in terms of valuations these stocks have become a little bit overowned. Virtually anybody and everybody who was experienced, intelligent investor is holding one of the stocks in his portfolio. I think in terms of valuation if you ask me to compare, I would put Equitas now at number one. I like Ujjivan. I wanted a correction. The correction has come up around 20%, around Rs 380-400. If it comes to that level, I think Ujjivan will look good. But if you ask me in a clear perspective vis-à-vis this company whose valuations I feel are quite expensive, I am not saying they will not go up further. I would go back to my tried and tested, possibly the best stocks in the market -- IndusInd and HDFC Bank.

If you compare them in terms of the parameters vis-à-vis this, they are dirt cheap now. So instead of these three, I would possibly go in for an HDFC Bank and IndusInd Bank. I am not saying because these stocks have relatively not performed as well in the stock market but in terms of valuation, looking at the same parameters they are miles ahead of Equitas, Ujjivan, Bharat Financial put together. While stating that these three stocks otherwise are good companies, I think they will continue to fair well because virtually anybody and everybody who is powerful in the market is invested in one of these three.

ET Now: The pharma basket is a divided house where the ones that are fixing their problems get the bias on the positive and the ones where there is a bit of grey area are the ones to avoid?

Mehraboon Irani: I would put it this way. I have been very negative on the pharma space for over the last two, two and a half years time. People have been buying it saying that it is a stock which protects you on the downside. I refuse to believe that and I was very open in my interviews with you all. Also that I found all the stocks -- Sun Pharma, Lupin, Cipla -- extremely expensive. If you look at the stock performances over the last two years, the stocks have given negative returns. Now they have come to a level where maybe the downside is limited and maybe they will climb up. Is that reason enough for me to recommend them? The answer is no.

But I like certain stocks in the pharma space, I like names like Alembic Pharma which I have always been positive about. I like a name like Glenmark and I continue to like Biocon. So I would put these three ahead of others while stating that stocks like Sun Pharma and Lupin at the present levels, one fine day when things actually improve even from the regulatory problems which they have been facing, I think these stocks can only go up but this is no reason for me right now to press the buy button in a hurry so I would stick to faithful like Alembic Pharma at number one, Glenmark at number two, Biocon at number three and maybe a Dr. Reddy’s on the outside.

ET Now: I was surprised then that within the two wheeler pack given what Eicher Motors has done, the other key two wheeler majors will also want to be eyeing that market that is the premium two-wheeler segment.

Mehraboon Irani: I would say that if you give me a preference in terms of stocks right now, the levels at which they are considering, I take into account parameters like floating stock overowned, underowned of a stock I would still put Eicher Motors at number one with Hero Moto at number two and Bajaj Auto very close number three. TVS, I think would be the dark horse only for the simple reason the stock has not performed in the last three months especially after the March quarter results.

So, I think there are lot of people who feel that TVS Motor can give you the maximum returns in terms of percentage over the next three-four months which is distinctly possible but when I am giving a call I am giving a call for a longer vision, for longer term investors. I just wish to state one thing that most of the stocks if you ask me are relatively expensive. If we have a correction of 100-200 points on the Nifty, you can see the stocks may be 5%, 7%, 8% lower and I think quite a few of them were down yesterday with the exception of Eicher Motors. So should one buy it for the short term? I think let the viewer decide but from a longer term perspective, I gave my preference and I think one of these three stocks should be in an investor’s portfolio.

ET Now: There is a distinct shift in a large way from the unorganised space to the organised space and we are not even at the tip of the iceberg right now. Is there merit in investing? You choose your company but is there merit in investing in one of the dairy companies? There are five or six of them which are listed now?

Mehraboon Irani: I suppose so and I think with a clear disclosure that we have bought into one of the dairy stocks called Kwality Ltd about a month ago for our clients. Since I understand this company, I would put it this way that this entire sector if you ask me, I think has become of a large interest to traders as well as investors, especially because of the shift towards value added products.

From being a pure milk company, these companies are moving into flavoured milk, ghee, paneer, peanut butter and other type of things and quite a few of them are doing it.

If you ask me, it is Parag Milk, in terms of quality, is tops. But in terms of a growing company, it could possibly be Kwality. The reason is they have got a new unit which is going to be the value added products, they have got Akshay Kumar signed up as a brand ambassador, they have got the Kwality brand name back after possibly settling it out of court with the original promoter of the company and the ad had come in the front page of your sister publication today.

These companies are shifting from B2B to B2C model. There is a problem here of debt.The debt is high. Should one risk and buy into it, I think this is a sector which is into focus and one of them could be owned. My bet would have been Kwality and I have clearly given a disclosure for our clients. But on the whole this dairy pack, I would say if I compare all these dairy stocks valuations with a Glaxo Consumer which is like comparing an HDFC Bank with the Ujjivans of the world, I would say Glaxo Consumer looks dirt cheap. So either dairy stocks have become very expensive or Glaxo Consumer is cheap, take your pick.

From a trading angle, considering the momentum which has been built into dairy stocks, I would put Kwality at number one and Vadilal at number two. But I would still say that if an investor wants to buy maybe for the next three, four, five years term, this is the time to take a relook at companies like Glaxo Consumer which are now looking relatively very cheap as compared the new players.

ET Now: I want to ask you about sugar and the reason I bring it up is I think after a hiatus of six to seven years a couple of sugar companies have gone out and raised money via QIPs. People investing in stocks is one thing but for two companies; one Dhampur and then Dwarikesh to go out and close QIPs, speaks of how people might be a bit confident about the cycle being there right now. Money is as we hear is also going into paying off debt. What is your thought on sugar now? There is a rally, there has been a bit of a pause, is it good enough to restart or reinvest in this space?

Mehraboon Irani: I think I have been consistently on this for the last four, six months. You will recollect on your channel I had mentioned that I completely disagree with people who without understanding the commodity cycle have gone to state that paanch din ki chandni and dus din ki chandini because I personally feel this cycle has started for the sugar sector some months ago and I think this is presently going to continue for some more time.

Let us not forget that sugar this year, we are having a shortage, point number one and point number two government has done whatever it could do. If we have a slight rise in sugar prices which is on the cards and it has gone up as far as I understand from the trading community that the sugar prices are firming up further, I think there is a long way to go for this sector. So while the stocks would have gone up very sharply, there could be correction here and there but there is nothing to make me conclude at this moment that we are coming to the end of the cycle. So I think the cycle could continue at least for one or two more quarters, if not more as of now.

ET Now: Would you focus on insurance now?

Mehraboon Irani: I think as a sector, certainly it is going to grow so this is a sector in which the players, I think ICICI Pru is the biggest player now in the listed space, I would say that this business is going to grow, it could be a great investment for the longer term but in terms of valuation at which the shares were issued, well I was not very comfortable just coming out and saying it is a great buy from the listing angle. The reason is while people have argued from the embedded value that it was looking relative cheaper than Max, I do not think that is the way to look at it because Max, let us not forget is largely into protection whereas ICICI Pru is mainly into that ULIP type of product.