Lokapriya also says: “Sterling Wilson will benefit from the rollout of solar rooftops panels. Second is REC, which has already run up but valuation is still on its side. It is going to be one of the lead financiers. It trades at about 1.2 times book. That will also do well at current levels.”
How have you read into Kotak’s earnings as well as ICICI Bank and what you make of the stocks post the quarterly numbers?
Chakri Lokapriya: ICICI numbers were clearly better than Kotak’s and their loan growth and the deposit growth has matched out. I think their impact on their NIMS or their margins will be better than what the impact will be on Kotak. Both of them trade at about 2.5, 2.7, 2.8 times earnings and there will be some kind of a NIM moderation at this point in the cycle. Given that Kotak has had a slight increase in provisions, I think it will tread water at the current levels, whereas ICICI will probably do better from the current price.
So can we say that the challenge for HDFC Bank is a bank specific and not a sector specific challenge?
Chakri Lokapriya: Indeed, absolutely. Because if you look at ICICI Bank earnings, their loan growth is at 17-18%, deposit growth is also at similar numbers. And also if you look at the numbers reported both by PSU as well as PSU banks, of course their loan growth there, some of the banks are far stronger. So it is indicating that the system itself is growing. Clearly in the case of HDFC Bank, they are having this merger integration in terms of matching the book; on one hand, there is HDFC, the mortgage company, and then the bank, and with very different margin profiles. Getting them together is resulting in both a cost of funds problem as well as growth problem.
What is the outlook on Zee Entertainment? Now that the massive merger has been called off, does it spell only bad news for the stock going down the line?
Chakri Lokapriya: It is best that we stay on the sidelines on Zee because clearly with the merger now being called off, a lot of management bandwidth is not going to be on the business, but will go in trying to fix what they can salvage and therefore growth will come down. In a super competitive business in the media industry, this spells bad news for Zee. The stock after opening weak, will stay weak for quite some time.
Looking at the kind of valuations that some of these railway stocks are quoting, it is higher than a lot of Nifty 50 names put together. It is obvious that new investors need not jump in right now, but what about those who are already making like 3x, 5x of their investment? Should they also be profit-taking?
Chakri Lokapriya: We were fortunate enough to get in on this bandwagon more than a year ago. So, we are not selling at this current level because, yes they are expensive; yes, there will be a correction. But if you have the kind of upside that you have had, then you can afford to lose, let us say 15-20% of the top so that is one way to look at it if you are already a holder.
If you take a company like IRFC, after all the run-ups, still on an FY26 basis, the valuations are still only about 20-22 times. Now, one can debate about the margins and the multiple that you can assign. So clearly not the time to get in, but if you are a holder of the stock, still hold on.
What is your outlook on L&T? An interesting note ame from Morgan Stanley today, talking about infrastructure margins that will grow, international hydrocarbon contribution, and core earnings growing further after the mammoth move.
Chakri Lokapriya: L&T is very firmly well positioned. After a long time, both its offshore as well as its domestic business are doing really well. And the expectations of the order book will grow only faster. Against this, the margins will improve given that it has some amount of leverage in its balance sheet and operating leverage in its balance sheet. Against this backdrop, as large orders come out, L&T will continue to do well even from current levels.
What is the outlook on midcaps? Top recommendations in light of the Budget?
Chakri Lokapriya: Sterling Wilson will benefit from the rollout of solar rooftops panels. Second is REC which has already run up and valuation is still on its side. It is going to be one of the lead financiers. It trades at about 1.2 times book. That will also do well at current levels.