Expect strong earnings growth in corporate banks for next 2 years: Hemang Jani, Sharekhan

We expect a decent 12% to 14% upside for RIL from current levels, says Jani.

We are not seeing any meaningful growth both in the EBITDA and profitability for RIL for a while. This is an opportune time for them to bring in an investor for their core business and create some cash flow for their operations, said Hemang Jani, Senior Vice President, Sharekhan, in an interview with ETNOW.

Edited excerpts:

As unfortunate as the temporary shutdown at Jet may be, do you think from an investment perspective, it is advantage Indigo and SpiceJet as the stocks did spike up when the rumours began floating that perhaps the next option for Jet is going to be a temporary shutdown for the want of funds?

Yes, the fact that Jet has shut down its operations temporarily can prove to be advantageous to other domestic players but other than the short-term advantage, we have to understand that crude prices have really shot up and time and again we have seen that despite the growth in passenger traffic, we have not really seen most of these airlines reporting any significant improvement in EBITDA or net profit per se.

Leaving aside that upside, I do not think one should really be too positive on the sector because of the way the operations are being managed by the airlines. We have seen Kingfisher getting into trouble and now Jet.

Things are not looking that great and once the investment closure is done by Jet over the next couple of weeks, we hope they manage to do that and it may provide some upside for Jet depending on the valuation they are getting and. Overall, we continue to be quite negative on the airline sector per se.

Are we going to see the Jio magic fuel the Q4 numbers as well as double digit retail growth? The other big peg is that massive $15 billion deal with Aramco that is brewing. What is your view?

Reliance for the last five years has been in an investment phase. They had invested in their core business. They had invested substantial amount in Rel Jio and the retail part and now at this stage, it appears that the company is trying to deleverage some of their assets and if they manage to bring in an investor for their core business of refining and petchem which is stabilising.

We are not seeing any meaningful growth both in the EBITDA and the profitability for a while so this is an opportune time for them to bring in an investor for their core business and create some cash flow for their operations. Eventually the company would be looking at monetising of retail as well as Rel Jio. Once the numbers start showing up, it is looking pretty interesting. There may not be any good growth in the core numbers per se but because of the cash flow generation and because of this investment value creation there may be some amount of upside because of that and we have a price target of about Rs 1,605 for the stock which would give a decent 12% to 14% kind of an upside from current levels.

Where within corporate banks would you recommend fresh buying?

What we need to reckon is the fact that after almost three to four years, we are seeing a decent amount of growth coming back for the corporate banks and because of the low base and very strong CASA franchise, both ICICI, Axis and to some extent State Bank of India will report extremely healthy growth.

In terms of valuations still they are quoting about 20-22% cheaper to some of the private sector banks like HDFC, Kotak etc. As long as this growth momentum continues, we should not worry too much about the fact that ICICI or Axis has run up. At least for the next two years, the earnings growth is going to be very strong and that is going to drive the stock prices for corporate banks.

Within IT, do you think the leadership is clear now TCS as the solid number one and Infosys a distant second? What do you do with Wipro? The buyback is going to give at least some bottom protection to the stock price but beyond that, the margin guidance is disappointing.

Clearly, Wipro has been a disappointment both in terms of the quarterly performance as well as guidance. We are really not too positive on that one. But from a retail investors’ perspective, this buyback of almost about 5% or thereabouts of the equity will present a great opportunity to buy for those who are looking to invest up to Rs 2 lakh. Given the acceptance ratio which is likely at about 95% odd, it gives you a return of about 12% to 13% in a matter of four months.

From a retail investor perspective, this buyback is a great opportunity. Otherwise, from a IT sector perspective, you are seeing a decent amount of growth visibility for TCS. Infosys was a bit of a disappointment but at the price point. we are going to remain a buyer over there and in Wipro, one can participate only from a buyback perspective.




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