Jamna Auto, Navkar Corp and Sutlej Industries shine among midcaps: Dilip Bhat, Prabhudas Lilladher

In a chat with ET Now, Dilip Bhat, Joint MD, Prabhudas Lilladher, says that poor IIP numbers may increase the volatility but but markets will move upwards.

ET Now: Do you reckon the pain in pharma to continue?

Dilip Bhat: The pharma sector, of late has been hit by so many news -- be it the government decision to ban something or some US FDA decisions -- which often tends to be a little damaging in the short run. By and large these things are bound to rattle the space, but what is more important is that overall the growth trajectory still seems to be in place. The rupee seems to be in its favour, so I think overall we are still going to see net-net good growth. With a reasonable amount of ROEs coming into play for some of these companies, the sector will be viewed lot more positively and especially on declines.

ET Now: OMCs are doing okay, what is your view on it?

Dilip Bhat: After a long time, OMCs are going to see a sustainable amount of cash flows which is positive for some of these companies. It will be fair to assume that they have good a amount of flexibility in pricing. Taking that into account, on a long term basis, maybe over next 12-18 months, OMCs will still shine as compared to the other PSUs. We will gradually see the overall ROEs also improving significantly for some of these companies. So, this space will continue to attract attention as far as the OMCs are concerned. HP and BP are pick of the lot though personally we also prefer IOC.

ET Now: Do you as a house have cover either AIA Engineering or Whirlpool? Lot of people believe that these consumer durable companies will benefit a lot, because of OROP as well as the increase in the salaries to the railway class as well.

Dilip Bhat: No, we don't but I think AIA has some very good parameters like ROEs, cash flows going in favour of them. The company should also now benefit from the overall increase in the GDP and the expansion in the capital cycle. All these things point towards the fact that the trajectory broadly should be upwards. As far as Whirlpool is concerned, one factor in their favour is that raw material cost has come down. We have seen that with all these companies. As the interest rates come down and the discretionary spend goes up, all that is captured very well by some of these MNCs and immediately flow into their EBITDA, right up to the bottom line.

ET Now: Assuming the Fed move is not too damaging and we have about 25 bps cut from the Reserve Bank as well ahead of the earning season, would you be in favour of buying into the markets or would you wait till the earnings is over?

Dilip Bhat: There are two other points which I would like to bring to the attention. One is that the FIIs have really come back with a good amount of intensity at the moment and that is a positive news. The other thing which is really going to increase the volatility is the fact that the IIP numbers continue to be poor. So, my call would still be that there will be a lot of volatility but by and large the markets trajectory will be northwards gradually.

ET Now: You had mentioned that there are companies which you believe would actually quadruple their profits in the next two, three, four years. While, this market has inched up a bit, companies like those would still attract attention, what is your favourite currently as a house in PL?

Dilip Bhat: As far as the midcaps are concerned, let me segregate the basket about the midcap conference that we held. We certainly like Spice Jet in the midcap space. That is one stock which really can go places, possibly in the next one and a half to two years. The short term controversy, whatever it is, may not have a real long-term impact. But having said that, Spice Jet still looks pretty interesting from medium to long-term perspective.

Coming from our mid-cap conference basket, something like Jamna Auto looks pretty interesting. That is a company which probably is now treading the right path, observing a good amount of discipline. They are the ones which are likely to grow by 15-20 per cent on a top line; bottom line will show something like 25-30 per cent growth with ROEs around 22-24 per cent. That is a stock which is on our radar at the moment which should do pretty well.

Apart from that, there is Sutlej Industries which is basically into the cotton and cotton yarn and that looks pretty interesting. Navkar has corrected very well ever since the public issue, but that is a company which has the potential to double its profit over the next two to three years. That stock also looks pretty interesting amongst the host of the stocks which we are looking at.