Markets have factored in correction in cement stocks: Devang Mehta, Anand Rathi Securities

In an interview with ET Now, Devang Mehta, VP & Head Equities Sales, Anand Rathi Securities
gives his views on cement stocks. Excerpts:

ET Now: What is your view on cement now given the expectations that there could a CCI order of an 8 percent penalty, the highest ever in the CCI’s history?

Devang Mehta: Almost a 5 percent correction in cement stocks has been factored in with the CCI order. The non-cement businesses of a lot of companies like JP Associates and Kesoram will be impacted more.

If we talk about largecaps like ACC, Ambuja and UltraTech, there will be around a 10 percent correction because we know that most of these companies will have headroom to take this matter forward to a higher authority or the appellate tribunal. So, this news would not impact much if the penalty is between 3 and 5 percent.

ET Now: What is your view on Educomp? With the FCCB approval or rather the fundraising? Does it seem like in the near term, there could be some debt repayment but long-term issues with the fundamentals of the company would still persist and what we are seeing today is just a kneejerk reaction?

Devang Mehta: Exactly, this space was enjoying a lot of valuation premium initially around 2-2.5 years back but due to certain corporate governance issues and also because of the high debt on many such companies, the space is not enjoying that sort of comfort zone with investors.

So probably if somebody has Educomp, we would suggest a hold, but I would not suggest any fresh buy in Educomp after this run-up.

ET Now: The other thing is if you look at the market since the last 4 or 5 months, beaten down spaces like infrastructure for example have given a 15-20 percent return and all consumption/FMCG stocks have come off. What do you do in a scenario like this at the current point of time?

Devang Mehta: See it may sound much clichéd but probably the market is going to give premium to stocks which are continuously showing excellent earnings, very good business models, robust ROEs.

Companies like Castrol and Aditya Birla are currently doing extremely well. If I can talk about Castrol, the company currently has excellent ROEs, crude prices coming down will also greatly impact its bottomline.

So, these companies will enjoy valuation premium and we would rather be more stock-specific than sector specific. In fact other than infrastructure, we would prefer something in the infrastructure finance space like an REC, a PFC or an IDFC which would reap the benefits of infrastructure doing well before the infrastructure stocks do well.

ET Now: What about the entire aviation pack because there is a comment coming in from the aviation minister saying they are going to look at opening up FDI in the sector soon? Is that a good opportunity to buy into any of the aviation stocks or would you still rate it as an avoid because of fundamental concerns?

Devang Mehta: No, we have always maintained that the aviation sector would be best avoided. Across the world, we have never seen people making good money in aviation stocks and the same applies for India as well plus about 50 percent of their operating costs come in from ATF which is also a huge cost.

Only FDI in aviation is going to be a little bit of trigger. There will surely be trading bounces in these stocks. So traders could very well take their opportunities following appropriate stop losses but for investors who are hardcore and for the longer term, we would not prefer aviation space when the market offers a lot of attractive themes and valuations in other stocks.

ET Now: You mentioned Castrol, if you had to pick one largecap, what would it be?

Devang Mehta: We would prefer a stock like Aditya Birla. As I said, the company is a diversified group, the management integrity and the quality of management is unquestionable with Aditya Birla Group headed by Kumar Mangalam Birla. We could also see that the company is a holding company for a lot of businesses like insurance.