Allahabad Bank good buy in midcap: Seshadri Bharathan, KSEMA Fincon

Seshadri Bharathan, MD & CEO, KSEMA Fincon Ltd looks at the banking vertical, besides discussing OMC valuations, post-deregulation, in a chat with ET Now.

Which are the banking counters that you like apart from Axis Bank?

Seshadri Bharathan: Axis Bank reported strong set of numbers. We have seen that the net interest margin is above 3.5%, CASA is more than 40% and the ROE and ROC is more than 20%. So the fundamental numbers are pretty strong, the loan disbursement also is more than 25%.

Having said that apart from Axis Bank, the other stocks that I like is Allahabad Bank in PSU midcap space. Again a stock which is more on valuations side because if you look at the quarterly numbers, the bank has done well, net interest margin is around 2.8%, the stock currently trades around 5.3 times their FY12 earnings of around Rs 37 and on price to book value, it is around 1.1 times. So yes, it makes sense to invest in Allahabad Bank with a target of around Rs 210-212.

What are your views on Ion Exchange?

Seshadri Bharathan: For an investor, either he has to look at a growth stock or a value stock and I do not see that happening either of these in Ion Exchange. Margins are very low, single digit around 1% to 2%. Even the business does not have growth picking up. So my sense is that investors should avoid this stock.

Post that deregulation news, do you think that the valuations are looking stretched on oil marketing companies stocks?

Seshadri Bharathan: Not exactly because if you look at most of these stocks be it BPCL or HPCL, they trade around 1.1 to 1.2 their book value for FY12 if you look at the international market, most of these stocks trade anywhere between 1.5 to 2 times their book value. So as the government's process of unlocking and the deregulation of the petroleum market goes on continues, we will see lot of fund activity and lot of institutional buying happening in most of these oil PSU stocks.