Tough to get a handle on TaMo, look into these 4 auto stocks instead: Dipan Mehta

“In the case of diagnostic companies,we could brace for maybe a couple of years of stagnation and flattish quarters but the longer term outlook is excellent and I would like to see how the competition is able to take market share on the likes of Metropolis or Dr Lal’s Lab. I am not sure it is that easy to set up a business in this particular space and scale it the way these companies,” says Dipan Mehta, Founder Director, Elixir Equities

What is the outlook on Tata Motors? Do you think that given that it has been an okay quarter, the commentary perhaps is going to really jitter the Street?
Tata Motors is always full of surprises with their earnings and there is a great deal of volatility when they report their results. Lot of it is of course dependent on how their subsidiary JLR performs. JLR itself is a very complex business with China, the US and the UK all playing different aspects with different contributions to the profitability. It is very difficult to get a handle on Tata Motors.

In the long term, investors have benefited from all the strategies undertaken by the management but in the medium term, there are better spots in the auto space per se and our preference is for steady performers like Maruti or Mahindra & Mahindra.

In the two-wheeler space, Eicher Motors and TVS Motors need a mention over here so while autos are doing exceedingly well, a better way to play them would be to buy into other auto shares and not Tata Motors, which remains a bit of an underperformer and it's very difficult to get a handle on what kind of returns it can generate.

This is a great business and generates a lot of cash, the growth is strong. But for shareholders is diagnostics a sector which will grow but will not create a lot of money now because of competition and other factors?
That particular argument is certainly valid and I heard you say it is a great business and I think that is what is attracting so many new players into it. At present, there is a price war playing out but overall healthcare expenses are moving up and diagnostic companies and whatever activities and services they offer are becoming more and more mainstream, when it comes to spending on healthcare. It is the first line of investigation and will never ever go away.

So on the whole, we could brace for maybe a couple of years of stagnation and flattish quarters but the longer term outlook is excellent and I would like to see how the competition is able to take market share on the likes of Metropolis or Dr Lal’s Lab. I am not sure it is that easy to set up a business in this particular space and scale it the way these companies.

Also there is the unorganised sector which is right for picking as far as market share gains are concerned and over the last few months or so, valuations for both these companies and some of the other listed ones also have come off into more reasonable territory.

As an investor I would remain invested in these companies because the long-term trajectory is good but from a fresh investment perspective, when you want to look at healthcare as a whole, I would prefer hospitals and by far the hospital came out with a very good set of numbers for the June quarter and followed that up in the September quarter as well, It is across the board whether it is Narayana Hrudayalaya, Rainbow or Shalby’s or even Apollo Hospitals for that matter.

But at the fag end of this earnings season, have you bought any of the companies afresh or added positions?
Well not really but by and large, it has been a good earning season because a lot of our clients and our money was in the banks and by and large banks and NBFCs have come out with an exceptional set of numbers. I would say this is the best ever I have seen in the banking sector for the last 25-30 years or so, where credit growth is moving up and that is leading to higher net interest income. Fee-based income is also coming through strongly because of new loans which they have approved.

At the same time, credit costs are flat to declining and this is a blue sky scenario in which banks are operating at this point of time and whether it is a PSU bank, private sector bank, large, small, an across-the-board mover has lifted all these stocks and that is one sector where we will find many ideas. In a way, people are over invested in some other stocks over there. But by and large, if this kind of a momentum continues for next few quarters, we will see the Bank Nifty leadership position getting established further and these companies could do even better going forward.