Will Hero MotoCorp and Lupin turn out to be good bets for Rajat Sharma?

Rajat Sharma, CEO, Sana Securities, says he likes smaller banks like IDFC First. These days it is moving fairly fast as is Federal Bank, but I will have to look at the results for that. Other than that, HDFC and Bajaj Finance have posted very good results around 30% increase in both gross revenue and the net profit, but Sharma says these are enigmas.

“Personally, my view is, going forward in the next three-four quarters, we will see dispersals getting slower as also the offtake of loans and that is the intention for raising interest rates. So, I am a little negative on the banking space in general and large banks in particular. ”

Have you analysed the MSCI news about HDFC twins and then numbers from a Federal Bank or for that matter why IndusInd Bank may be falling the way it has been?
I was looking at the Federal Bank numbers and to be honest, I have not really seen anything so far which points to why the stock would fall 7%. To me, everything looks pretty great. The NPAs have reduced, profit is the highest that they have made historically in any quarter. I will have to look deeply at the numbers. But the other bank which I have had in my portfolio was IDFC First and I think there also we saw a 15% drop in NPAs.

Can you tell us more about some of the banks that you hold in your portfolio?
I was saying it is too early for me to analyse Federal Bank numbers, although I have it in my portfolio, but prima facie it looks like the loan book has not grown as much as it has for some of the other banks because the NPAs have come down and the net profit is the highest that they have reported.

As I said, I will probably take this up in the next chat we have. But yes, the other bank that I have been tracking very carefully, which I have recommended many times, is IDFC First Bank. I think that bank right now looks like the strongest bank in the entire private sector banking space. One cannot really compare it with an HDFC or an ICICI because of its size. But the NPAs have come down around 15% to 0.86%.

Valuation-wise, it is available at a valuation of 16 versus something like a 20 for HDFC and other larger banks. I really like smaller banks like IDFC First. These days it is moving fairly fast as is Federal Bank, but I will have to look at the results for that.

Other than that, HDFC and Bajaj Finance have posted very good results around 30% increase in both gross revenue and the net profit, but again I think these are enigmas. The way interest rates have moved up in the last 12 to 14 months, we have seen a 60% rise in interest rates, from 4% the repo rate has moved to 6.5.

Personally, my view is, going forward in the next three-four quarters, we will see the impact of that. The dispersals will get slower and the offtake of loans will get slower and that is the intention, that is why interest rates are raised. So, I am a little negative on the banking space in general and large banks in particular.

I have both these banks – Federal Bank and IDFC First – in my portfolio. I would be looking to add more if the price corrects.

What are the other prominent names that you have added in your portfolio of late? Which sectors, which stocks?
We have added two stocks. First of all, we have had a great year holding stocks in the FMCG space and ITC was one of the top picks. ONGC was also one of the top picks and I recommended both these stocks earlier. Since then, not much has changed in our portfolio. Of course, they have had a great run.

There are two stocks that we have added in March and April, and we are continuing to add this with the incremental flows we have. One is Hero MotoCorp which posted its results on Thursday. Their quarter-on-quarter net profit was 37%, overall net profit for the year was 18%. They have declared a dividend of around Rs 35, which takes the overall dividend to 100, that is like we are getting a franchise like Hero Moto at a dividend yield of 4% at the current price.

The reason why it has been struggling the last four-five years is because there was a lockdown on account of Covid, the sales were low and then they were late in entering the EV space and to be honest they have still not really entered it in any meaningful way. But they have done a tie-up with Zero from California, and they are getting into electric motorcycles. From January, they have started sales of their electric scooter, Vida.

As they have one of the biggest distribution networks and they plan to reach 100 plus cities as the management said on Thursday and the price at which they are selling it right now, I am pretty sure they can compete against all these new entrants whether it is Ola, Honda or Ather. They themselves have a 34% stake and o that is one stock that we have added to our portfolio.

The other is Lupin. Again, just like Hero Moto, a lot of people might find this stock a little boring because it has again not done anything. In 2015, this stock was trading at Rs 2,100 plus and today it is at Rs 710 and there are no takers. But what has turned around for the company is that in the last two-three quarters, the company has turned from a loss-making company to profits. They have again started reporting profits.

Lupin is reporting its numbers today and I expect any number where their profitability, net profit is about Rs 158 crore or so, 10% to 15% jump will be very good. But the key metric to look out for would be the overall revenue which is the gross sales, the top line, because this company has struggled as the regulatory environment has not been very favourable after Covid and they have received a number of US FDA warnings for all their manufacturing facilities.

We have just published an article on my website where we have listed how many warnings they have received, but this seems to be cooling off; 36% of their revenue comes from the US. The US FDA three weeks back approved one of their new medicines, probably Brexpiprazole which is manufactured at the same unit against which they received all these US FDA warnings last time. So, I am fairly positive that the company is taking steps to address these problems and since it is turning profitable, it is available right now at very attractive valuations.

Lupon is still the seventh largest generic company in the world, so it is a perfect example of a company which is available for external reasons. For reasons beyond their control, stock price has fallen; also, it is sentimentally weak and out of favour. This is a great time to buy stocks like that.

What is your opinion on the entire new-age tech platform cluster?
I have stayed away from these. I had categorically, even before the IPO said that these stocks will struggle. Paytm was interesting. I was going on many shows and saying we are getting a secondary market sales demand for Paytm when it was listing at Rs 2,100, meaning that the day before the listing, we had some large investors who wanted to sell before it gets listed at Rs 2,000, 1,900, that was the sentiment that we were seeing. I have no idea how this company even got listed at that price.