Bajaj Finance: Switching from Bajaj Finance to ICICI Bank or AU Bank: Hemang Jani

“In the cement sector, UltraTech is our number one choice, but Ramco Cement and JK Cement, which have a presence in Madhya Pradesh and northeastern regions, provide a good opportunity for investors,” says Hemang JaniEquity Strategist and Group Senior Vice President, MOFSL.

Bajaj Finance which published strong figures, but according to market expectations, they are in line. What room for upside do you see after these numbers?
We have a very clear and simple view that the market right now is not willing to give additional allocation to companies that are trading at very high valuations and are not seeing growth. Here we have a company that’s a great franchise but they’re seven times the price to book on a FY23 basis and where growth doesn’t look good and more importantly over the next one or two years there there will be a compression in the margins.

Our clear conclusion is to leave Bajaj Finance and move to something like ICICI Bank or AU Bank where you get a good franchise at a reasonable valuation; ICICI Bank is around 2.4-2.5 times, AU Bank is also somewhere similar and both have a much better growth profile.

Two-wheeler makers are facing fierce competition from unlisted players, but we’re seeing a spike at Bajaj Auto, M&M and Hero MotoCorp. What meaning do you have of this space?
This is an area where we have encountered challenges not only in terms of input costs, but also chip issues and disruptions. Everything that could go wrong has gone wrong for the sector and that’s why we’ve seen such underperformance not just this year but for maybe three to three and a half years.

At this point, there is a feeling that prices or valuation are definitely on their side and that India as a country holds great potential for the automotive sector as a whole, despite the risk of disruption that exists. People are taking a price call and we think names like Ashok Leyland, Maruti, even some of the two-wheeler names, whether it’s Bajaj or TVS, have great risk-reward. It also presents an excellent entry point. It may go through a bit of a rough patch until we see strong growth, but from that perspective, this sector offers a lot of potential. Even Tata Motors makes a very strong case for an allocation.

What do you expect from HUL? The ET Now poll indicates that margins will be under pressure due to pressure on commodity prices. The home care segment may do well, sales volumes will be impacted by downtrading to lower priced units. What do you work with?
In the case of HUL and most consumer businesses, we think volume growth will be a bit weaker due to the kind of slowdown we’ve seen on the rural side and the cost of inputs has really gone up a bit during the last quarters. There will therefore be significant pressure on the margin. We don’t think the numbers will be progressively positive. Then there’s this palm oil issue that may be the subject of increasingly negative news flow. FMCG or the consumer sector doesn’t look so positive to us.

If the Holcom agreement materializes, will it have a deleterious effect on small cement companies? When the deal came out, the small cement companies started doing cartwheels, but we didn’t see any follow-up after that?
This will be an important event for the sector and depending on which group succeeds in taking over this and the valuation at which the deal closes, we will show some revaluation of large and mid cap companies as the last six months have been very difficult for the sector, partly because demand was not very high and partly because of the pressure on input costs.

When a sector experiences these kinds of time and price corrections and a deal is struck, it gives investors renewed confidence to look at certain opportunities. We believe that the extraordinary increase in input costs has started to stabilize to some extent and that the market would start pricing in well before the actual decline. In the cement sector, UltraTech is our number one choice, but Dalmia Bharat, Ramco Cement and JK Cement, which has a presence in Madhya Pradesh and northeastern regions, offers a good opportunity for investors as its listing is still lower. by 35%. than large-cap names.

The Murugappa group of companies has a variety of businesses ranging from Coromandel Fertilizer to Tube Investment. Look at the surge in some of these stocks and it’s still one of the most underrated, conservative, and solid groups of the old school.
I totally agree that a lot of these companies have been doing exceptionally well in terms of operational performance and there’s some sort of revaluation that’s driving stocks and across the list we like Chola because when it comes to auto finance, there aren’t too many names that come to mind and they’ve managed to snatch market share from the banks.

The banks, sort of beyond those two wheelers, really haven’t been able to get into the stronghold of NBFCs and how Chola handled the whole transition from a single product business to a multi-products and the way they’ve gone about managing all this downturn, there’s a lot of confidence and now the growth phase is coming back. So we like Chola as one of the preferred picks, especially on the auto finance side.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)

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