Where within metals do you find strength, or would you say avoid right now?Sandip Sabharwal: Typically, I tend not to invest too much in commodity stocks and that includes most of the metals. So, although the outlook and results for majority of the companies have been decent, but I am not investing in this segment at this point of time.
There has been quite a bit of diversification within the entire auto pack with CVs doing one thing, passenger vehicles within that as well there has been quite a disconnect on what Maruti is and how you approach a Tata Motors or what M&M has emerged to be as a very-very strong SUV player and dominant one in the market and then Hyundai could not quite take off post its IPO. Help us analyse the entire four-wheeler space.Sandip Sabharwal: On the commercial vehicle side, the cycle has been on a moderate growth cycle or a downturn sort of. Now, in the coming year the possibility of a positive surprise, I would say, is greater than that of negative surprise because one, as economic growth picks up, interest rates move down, it will definitely generate more economic activity and as such more demand for commercial vehicles.
Companies like Ashok Leyland I believe that the replacement cycle should now start playing out although many analysts have a divided opinion on that. But that said, the trough seems to have been reached, so the possibility of growth surprising on the upside could be positive.
On companies like Mahinda & Mahindra, obviously, normal monsoons, etc, help them on the tractors, farm equipment side and their utility vehicle segment as it has been doing well. So, I believe M&M should continue to do well. And overall, if the rural buoyancy comes in and accelerates, then it would help the two wheelers also. But on the four-wheeler side, Hyundai has been losing market share because of lack of new models, etc, and that has helped some other companies actually gain market share because at one point of time Hyundai was taking huge market share away from many of the other four-wheeler companies. Maruti, M&M should do well and the dark horses could be the commercial vehicle companies. Just wanted to have your take on Balkrishna Industries as well because that counter will be in focus as the company has announced their foray into the truck and bus radial tyre as well as the passenger car segment and of late, we know that Balkrishna has a big presence in off-highway tyre segment and this is a new foray that they have announced to enter into the mass category and the margins in this particular category is, of course, way below than what Balkrishna holds around 25% of the margins. The valuations are at a lower level. Do you believe this can have an impact on the stock price on the negative side as well because the company did come out with their 2030 outlook. Will that give confidence to the investors or they will take this news negatively of their recent foray? Sandip Sabharwal: You have analysed the entire business quite well. So, they are in a high margin segment where they have reasonable market share and where entry barriers are high. They are entering into a segment where there are huge number of entrenched players, creating a brand itself will take a long time. Getting entry into OEMs will be tougher and then replacement market also will be tough for them and it will require a lot of branding exercises and margins obviously will be much lower. So, on balance, it is a negative trigger in the near term for the valuations of the company as well as outlook.
Of late, have you been liking the OMCs counter because stocks like BPCL, HPCL, they are on the move.Sandip Sabharwal: OMCs have had a move. Now, if the crude oil prices start moving up or there is any fuel price cut that could be a negative trigger. So, I would think that at this point of time the bullishness is built into the OMC stocks.
