Keep a slightly higher allocation for healthcare versus pharma space: Hemang Jani

"Lot of things are going for L&T and it has been one of the best performing stocks and within capital goods I think the largest allocation if one has to put I think it would be definitely L&T," says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.

So hospital could be a space which has been a mild outperforming space but I would endorse the Jefferies’ note on what they have to indicate in terms of hospital/healthcare being a theme play for 2023.
I think hospital as a space is something that has done pretty well in the last two years and given that the pharma space particularly the generic one is not performing so part of that allocation is also moving into hospital space. And when we look at the performance, Apollo Hospital though is expensive it is actually delivering extremely good performance.

Last two years the EBITDA growth has been 24% and the other businesses have started contributing, the debt has actually come down. So, though it is expensive we think that given the pedigree and the kind of visibility which is there we would really go with that.

Apart from that I think Max Healthcare is something that stands out in terms of performance and valuation both. So, people would want to have slightly higher allocation for the healthcare versus the pharma space where the numbers are clearly not there for people to really participate.

What are thoughts on IndusInd Bank, numbers due today? I looked at the quarterly update what IndusInd Bank had reported, looks like they are getting their mojo back.
The numbers should be on track and this is one bank where if you look at the overall growth it is definitely better than many other listed private sector banks. The valuation comfort is very much there. In between people had concerns that their overall margin profile was not so good because they were not able to attract the deposit but looking at the overall picture I think things are looking pretty good and this would be one of the top picks that we have within the second line of private sector banks because of the growth visibility and valuation comfort both.

It is L&T as well which has got quite a bit of mojo going for it, sitting at all-time high levels, where do you see this one headed now?
Very positive on that entire theme and given that we have budget around the corner and lot of these companies which are the defence oriented ones they are also getting very strong order flows. So lot of things are going for L&T and it has been one of the best performing stocks and within capital goods I think the largest allocation if one has to put I think it would be definitely L&T. So, we have a positive view, and we think that there is a case for a 15-20% kind of an uptick even from current levels.

Clearly the stark one that stands out is LIC even after the recovery that the stock has seen from the lows, it is still around those 706 levels far cry from that issue price of 949.
Yes, absolutely. I think there is a big turnaround and sentiment change for some of the IPOs and not only the new age tech companies where there was so much of exuberance and euphoria they were going through. I think the market cap or profitability wise there is a huge gap so one is really not sure how exactly they will revive and over what time frame.

LIC actually is a slightly different kind of a ball game where you know for some reasons the interest was missing but when we looked at the numbers and the valuation both we think that it looks quite okay. I think at a point you will also see LIC really catching up big time so I think the 700 odd levels is a very compelling valuation and price. We think that it is a great buy for one year or slightly longer term perspective.

One space or one segment which has done exceptionally well is the entire luxury good space. Now, even if you look at the nine month data coming in from landmark cars, the total revenue has jumped up 41% year-on-year and that has both the elements of vehicle sales as well as after sale service. Even with respect to real estate we have seen that the luxury segment has been doing quite well, what is the best way to play this theme if at all?
When we look at the consumption and the premium segment what stands out to us is something like a Metro Brands. I think given the positioning that they have and the kind of steps that they have taken to really roll out more products, the overall margin accretion initiatives, I think that definitely stands out. And we do think that given the kind of growth visibility which is there these companies can provide a good 15%-18% kind of a CAGR for next two to three years. Titan is another name that really is fitting into that which has actually corrected despite a 12% kind of a growth but I think this is another very good evergreen kind of a story in the jewellery and the discretionary consumption space.

Actually in this entire footwear segment we had seen that sudden euphoria come in but that seems to have fizzled out.
Yes, absolutely. I think in between we had a big spike in some of these names and there was a correction and some of the companies actually disappointed on the performance. But I think this is a story for next two to three years and we think that if the companies can deliver high margins and a 15% to 18% kind of a growth, people would be comfortable paying a slightly higher valuation. So I do not think we should get negative on this at this point given that the performances are very good from some companies like Metro.

Okay, the stock which I want to revisit is Maruti. The new launches in a sense have been exciting. Auto Expo, I looked at what they are planning in terms of the hybrid models. Things are looking up. Where is Maruti headed? Do you think that could be the stock of the year considering that it could be a normal year after almost 24 months for the auto sector?
I think for the auto sector, particularly passenger vehicles, the growth run continues. In between we had some challenges on the margin front and for Maruti particularly their overall product basket was not looking that good with competition coming in from the Kia and the GM and many other names. But I think in the last six months or so, if you see their product offering has been much, much better. And this year again you will see two more launches so we do expect Maruti to go back to a market share of 45% to 47%. Even the Yen issue is now sorted so overall that looks quite interesting and positive to us.

Let us leave with some stock ideas from you.
Two mid cap companies I would like to recommend here; one is the Samvardhana Motherson and the other one is APL Apollo. I think both these companies are looking quite interesting. For Motherson having seen two years of grind things are looking much better globally. Auto passenger market is showing good traction and this one is looking quite positive to us. APL Apollo has been our favourite stock for a while and we think that the steel tubes segment and the growth and the positioning that APL Apollo has, can give a good of 25%-30% kind of an upside. So these are the two mid cap picks from our side.