Amnish Aggarwal on 2 top cement large-cap stocks to bet on; best buy in auto

Amnish Aggarwal, Head of Research, Prabhudas Lilladher, says the consolidation in the cement industry will continue and that is why among the largecaps, both Ambuja Cement and UltraTech will be the two stocks that will continue to do well. As far as the midcap space is concerned, companies like JK Cement seem to be slightly on the favourable side. Ramco valuation has not gone up much, but the valuations have been not that supportive at this point.

What is your take on cement space? Which are the best candidates to be played from both from largecap and smallcap universe?
Amnish Aggarwal: For cement as an industry, as indicated, the pricing has been soft and this is not, the new trend, usually the cement prices have not been able to hold on at higher levels even in the past.

The second is that the industry is undergoing significant consolidation. For example, there was of the acquisition of Penna Cement by the Adani Group 15 days ago and then UltraTech acquired some stake in India Cements. So, the consolidation in the cement industry will continue and that is why among the largecaps, both Ambuja Cement and UltraTech will be the two stocks that will continue to do well.

As far as the midcap space is concerned, companies like JK Cement seem to be slightly on the favourable side. Ramco valuation has not gone up much, but the valuations have been not that supportive at this point. So, it is better to play large-cap in the current industry scenario and that is why stocks like Ambuja Cement as well as UltraTech, so these two stocks look good.

CS Setty has been recommended for the post of the next SBI chairman? Any view on the stock and the person who is going to take over next?
Amnish Aggarwal: As far as stocks are concerned, we are constructive on SBI. The loan growth has been good. It is one of the best in the PSUs. LDR is under control and your price to book is not that high. So, even now SBI might not go up like it did in the past -six months. So definitely in the PSU pack, SBI continues to look good more from the medium to long-term viewpoint.

How are you reading the way IREDA's fundamentals and numbers are pouring in? The green energy financier, just now they have come out with their first quarter updates. On the traditional metrics of price to book, it appears expensive to some versus REC, PFC, but the stock just does not stop. What are your thoughts there?
Amnish Aggarwal: The main thing is that the renewable space is witnessing a significant increase in investments, whether it is solar, wind, or some of the other segments. The balance sheets of some of the companies that are operating there are reasonably good. Outlook and profitability metrics seem to be falling in place in the long term and that provides some sort of visibility of growth both in terms of sanctions as well as disbursement to IREDA and because more money is going into the newer segments where the players, the risk for default or NPA also is very low, so that might be one of the reasons.

First of all, the loan growth will be higher than the industry average and secondly, the NPAs are not likely to be there, so that is something which is perhaps reflected in the valuations of IREDA. But having said that, there is a limit to valuations and eventually 6 months or 12 months down the line, the valuations have to revert to the mean.

Ashok Leyland is at a multi-year high; even Escorts, and M&M for that matter. But the good news is that the numbers are not stopping. Are valuations starting to look a bit rich in select pockets of auto or are you still bullish on them?
Amnish Aggarwal: There are pockets of auto where the valuations, for example, you look at whether it is M&M or Maruti, the core business today is trading at a valuation which is multi-year high and so may be the case with the Ashok Leyland. So, a lot of incremental movement in the stock prices will be a function of how the volume growth pans out.

For example, if you look at the past couple of months, Maruti's numbers have not been that great, and I believe that there is some now inventory piling up as far as your passenger vehicles are concerned. Of course, Mahindra & Mahindra continues to be an exception where the volume growth continues to be good, both in UVs as well as if you look at the tractors, tractors after last year's decline are turning to be positive, although the valuations are rich, if a double-digit volume growth in the PV business continues, M&M can still do well from the current levels.

For Ashok Leyland, the major surprise has been that after a lull of two-three months, the volumes in April and May were reasonably good, that is one. Secondly, the margins surprised in the previous quarter, so that has led to the stock price going to these levels. So, a lot of incremental returns will depend upon the margin's sustenance, as well as an increase in volumes, which is dependent on how the economic activity continues. But if you look at the overall space, M&M continues to look the best in the whole lot.