Banking, industrials gave standout earning numbers in this quarter: Digant Haria

"I think while L&T is the bellwether of this sector, but the real party is below L&T where we see strong numbers, strong order books, strong commentary, even margin expansion," says Digant Haria, GreenEdge Wealth.

We are more than half way in the earnings calendar. Bank numbers are out. You have got numbers from L&T, tech pretty much the entire pack is out. Which to your mind is the standout numbers of this quarter?
I think banking and industrials or the capital goods space, really stand out in terms of numbers, right from, something like a South Indian Bank, which nobody talks about to something like an ICICI or HDFC everything gave good results. It is just that this is a over owned sector and which is why whenever FII selling happens, this is a favourite sector to get sold into. So this has not done well despite the whole good results. But I think it is a matter of time that the selling gets absorbed and this does well. Capital goods, I think beyond L&T, there are so many smaller companies like, CG Power. They reported blockbuster numbers on a blockbuster base of last year as well. Then you had Kirloskar Pneumatic, Bharat Bijli, numerous examples.

So I think while L&T is the bellwether of this sector, but the real party is below L&T where we see strong numbers, strong order books, strong commentary, even margin expansion.

I think these two sectors really stand out. The third one which kind of gave better results and expected was the whole IT pack. We were all expecting that because of the slowdown of developed world , but that did not happen. And I think that is one surprise in the whole result pack which has come out.

Since you spoke about CG Power, the stock is up 30x. 30x irrespective of what has happened in the world. A five rupees stock has become a 300 rupees stock. From 300 where can it go? Will it become a 100x before it tops out or it is going to top out sooner than later?
The way I look at CG Power is they are mainly into motors and transformers and the components which are used in any industrial setup. So, motors, in a factory, you need to replace motors again and again and again. So, it is a business which is sort of a consumer business when I talk about a B2B business that you have a very good brand and when people have your motors already in your factory and they would want to replace only your motors with their existing motors. So, it is in a way it is very rock solid, very long term business.

See, the previous promoters had a problem of over-leverage so it was always a 100 rupees business which went down to five rupees because of the debt crisis and everything got accelerated during IL&FS. The new management is the Murugappa management. We have seen how they have turned around Chola over the last decade. That is a management which is very clean, strong balance sheet, new products, they have launched so many new products in the last two years of just taking control. I think CG Power at these levels, is very difficult for me to say buy but if somebody has it, you should ride along as long as the whole capex cycle is going on. And beyond the capex cycle management, it is launching motors for electric vehicles and they have products for railways, they are doing a lot of things for Vande Bharat. They are doing things for the renewable energy transformers. So, I think you get a lot of things packed into one in this stock. Obviously, market is excited about this and that is why the stock is 30x. But maybe three, four years later, who knows this stock can be much, much, much higher than where it is today, if the execution is good, if the capex cycle is good. I think, Bharat Bijli over time were smaller brothers of this company and that is where there is some valuation comfort that we have.

What are your views on Adani Enterprises, the FPO? The subscription so far indicates they have raised about Rs 5,985 crores from anchor investors, going to raise close to 3,260 crore rupees from IHC and the management seems very confident that the issue will sail through? Just wanted to get in your thoughts in the backdrop of everything.
I have been tracking Adani sector only to the extent that all the banks get affected by this sector. I think from whatever statements they have made it looks like the FPO would go through and the deleveraging exercise for Adani should start. I think if we just go back to 2019-20, Reliance Group had also accumulated so much debt that in our banking circles there were discussions that what if something happens to Reliance and then over the next 2-3 years Reliance could deleverage by getting in foreign investors, getting in foreign money and there is Jio Platform and Reliance Retail.

They got really good investors and the deleveraging happened. I think Adani is at that stage where they accumulated a lot of assets and they need to deleverage now. I think that deleveraging process has started and I am sure over the next one year or so they will focus more on deleveraging rather than acquiring new assets. And then once the large groups are deleveraged the risk to the system becomes lower and lower by the day. So I think that is what I am expecting from the Adani Group as well.