Sanjeev Bhasin on 4 stocks to consider in the capex theme and include in portfolio

Sanjiv Bhasin, Director, IIFL Securities, says “L&T and Thermax are two big players which we have. If you look for a decline in ABB, then that would be a must-have in a portfolio. But a quasi-play on that would be Bharat Forge. As a disclosure, we have had Bharat Forge in the under coverage from that 650-700 and now closer to 1100, hitting all-time highs. We think it is in a very sweet spot, given that it has exposure to the forging industry, capex expansion and a defence side. So it is a quasi-play on the capex but Bharat Forge is a must-have in a portfolio.”


What is the outlook on the entire capital goods space? Are you sticking to some of the largecaps like L&T or would the net be widened further?
Capex is the best space ever. Imagine L&T announcing a buyback when the stock is at a 300 high, which tells you the confidence the management has. For a long time, L&T has always been in high single digits. This time, the margins are looking to be maybe in the mid-teens which is very sweet for L&T.

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L&T and Thermax are two big players which we have. If you look for a decline in ABB, then that would be a must-have in a portfolio. But a quasi-play on that would be Bharat Forge. As a disclosure, we have had Bharat Forge in the under coverage from that 650-700 and now closer to 1100, hitting all-time highs. We think it is in a very sweet spot, given that it has exposure to the forging industry, capex expansion and a defence side. So it is a quasi-play on the capex but Bharat Forge is a must-have in a portfolio.

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You track some of the premium liquor stocks very closely. The Economic Times this morning has put out that India may finally sign the Free Trade Agreement (FTA), with the UK by the end of this month, which means in the next fortnight. Diageo, which is listed in India as United Spirits, was seen as a possible beneficiary of that. Do you like it at current levels? It has done pretty well in the last six months.
Yes, that is the advantage of being a teetotaller. You are unbiased towards the ripple effect and you are more balanced, even if the stocks are rising to new highs. So on a lighter note, yes Diageo has been or United Spirits has been in my personal portfolio as a disclosure since a long time. I think the rising income, millennial spending, and the World Cup is all going to spur social drinking to a new high. The other stock would be Radico Khaitan which has been a true outlier. Stay with the market leader. Diageo is headed for newer highs.

I am curious to understand your take on how things have really transpired with something like Zee Entertainment? What is your outlook after the roller coaster ride that the company has really been on? Do you believe it is a good opportunity or is it a complete avoid?
No, no, it is an excellent opportunity. You will have to digest some of the news which goes on the NCLT and the court and the IDBI hearings all that is priced in. You cannot have Sony take a big stake of 57.5% and the company becoming relatively debt-free. I think the muck created by the Chandras has come to a head. And now you will actually see real value for entertainment.

Look at Sun TV hitting new highs. Look at the viewership Disney is garnering and with cricket and the World Cup and the exclusive rights Sony has, it is a very good long term play. So have a little bit more patience if you have. We actually spotted it at 185 and at a time when there was too much uncertainty, that gave you the real opportunity. I am not of the view that entertainment is a six-day or a six-week or a six-month. This is a very-very long story.

The way the Z brand is and the establishment they have across-the-board on OTT, this stock can be a huge outperformer in the next two-three years. Wait for this little bit of impasse to pass over and you will be sitting on a huge wealth creator once Sony gets the clear title.

In fact, I do very clearly remember that 185-187 is when your brave call on Zee was for a delivery-based kind of a play. That was a valuation mismatch and we were pretty convinced that this matter will move in favour and the merger will go forward. Last week, the print and the digital – DB Corps, Jagran Prakashan, ENIL, Radio – saw a very big ad rate hike yesterday. DB Corp has done well, Jagran, etc. Do you track that space because there is an election ad spend angle to it as well?
The market caps are fairly low and we are getting into bigger ideas right now. Zee has a market cap of closer to Rs 20,000 crore. Market cap of Walt Disney is $2 Billion. Entertainment in India is available for a song. Look at the viewership, look at the increase and the growth in everyone's budget to media is unavoidable. You will do anything, whether you are sad or happy, you have to watch the media. So Zee is a no-brainer.

The only thing which is overhanging is this constant to and fro of a few cases. They have settled most of them. This is going to do extremely well. You can add Sun TV, the time of breadth and the length, they are broken. It still trades at a very reasonable multiple. In the South, their market share being humongous, they can head higher on the OTT platform.

In the print media, I have not tracked some of them because the market caps are fairly low. But that is telling you that ad revenues are going to be or ad revenue incomes are going to be very strong because you are at the cusp of the festive season, the World Cup. All that means that players like Zee and Sun will be laughing their way to the bank.