Prefer largecaps and structural stories: Parag Thakkar, HDFC Securities

In a chat with ET Now, Parag Thakkar, Head-Institutional Sales, HDFC Securities, says there is a lot of value in the largecaps and structural stories like Kotak Bank and Maruti. Edited excerpts


ET Now: Now that the Roseneft-Essar Oil deal is being done, one would expect Essar Oil balance sheet will improve and maybe some money will go into the other group companies and therefore lenders like ICICI Bank and maybe a couple of others like SBI could benefit. Is that a reasonable way of approaching this deal?


Parag Thakkar: Yes, definitely. I would also like think so. However, a large portion of this money is going to go to the holding company and I am not sure whether SBI and ICICI has exposure to the holding company. I think they might have exposure to Essar Steel India company. So we will have to look into details but yes some part of the debt will definitely get repaid. It is incrementally a positive news, no doubt about it.


ET Now: If you had to make an IT investment, which company would you invest in right now in the largecap or the midcap space?

Parag Thakkar: See in large caps we continue to like Infosys, HCL Tech and of course TCS at a price. On dips, gradual investing into IT makes a lot of sense because valuations have become very appealing and cash flows are very robust.

It is a time of transition and this one year is going to be tough for this sector but they would come back strongly from next year. Infosys, HCL Tech, Persistent Systems make a lot of sense but you are going against the wind. So you have to buy slowly and gradually on dips.

ET Now: A couple of finance names were very active last week. Repco Home Finance which got badgered because of those CBI raids on the premises of the top management officials and J&K Bank wherein they have clearly stated that the next 18 months look slightly bleak. What is your take on these two now?

Parag Thakkar: I would not like to comment on these two names because they are not under our coverage but we like private sector banks like Kotak Bank, City Union Bank, DCB, Federal in that order. Amongst NBFCs, LIC Housing Finance still appears very cheap at 2.4x FY18 with 21% ROE.

I like Kotak because the ING Vysya integration is almost complete and so operating cost, credit cost, everything will peak out very soon and then from there on credit cost will decline by 30 bps. They are sitting on a huge tier-1 of 15.6%, so they will grow their book 20% for many years. Put together, it has a loan book growth of 20%, credit cost decline and operating cost decline, earning growth CAGR in excess of 25-30% and a very credible management. So I would be preferring these companies in the finance sector.

ET Now: Walk us through some value ideas in this kind of a market, you know, deal no deal, US Fed no US Fed, there’s always money making opportunities in any kind of a market?

Parag Thakkar: Yes, I would like to stick to largecaps now. I have been talking on midcaps for the last one year now but I feel that there is a lot of value in the largecaps and structural stories like Kotak Bank and Maruti. India is hardly penetrated in terms of cars and we are seeing a huge waiting period for Maruti’s models and excellent traction in the spare part business.

So, at 20 times FY18 plus a huge depreciation which is Rs 80 per share. Maruti is still undervalued in my view. Tata Motors DVR which is again trading at 35% discount to Tata Motors and Tata Motors itself is at just 4-4.5 time EV EBITDA and we are seeing huge traction in the numbers globally.

So I see a lot of-- Grasim for that matter, you are getting UltraTech business at a holding company discount and now you are also getting into NBFC business which is going to grow manifold. So I think I see serious opportunities in largecaps rather than midcaps now.