In the equity market, you never miss the bus; you can always catch a new bus: Sandip Sabharwal

“My Diwali pledge is to try and be always aware of what is happening globally and in India and not take too many risks and try to build a portfolio which takes optimum risk for optimum return,” says Sandip Sabharwal, asksandipsabharwal.com.

Last time around, during Diwali, we were around 18,000, we have come down now to 17,200-17,300 odd levels. But if you look at the world, we have done substantially well over the last one year. What would be your outlook as far as markets go? What are the key things to watch till next Diwali?
The last one year has been surprising on the positive side as well, I would say because of the way the world has behaved. Now the next year, like the previous year, is tougher to predict because of how well we have done. I would think that we will have a phase of extended volatility for a few more months. We will see the markets form some sort of bottom globally in the next four to six months and from there, we could have a better run.

Where we will be at the same time next Diwali is very tough to say because I stopped predicting the index a long time back.

Let us talk about the auto space. Your first pick is Bharat Forge. Now with the defence theme picking up and the EV theme picking up as well, how are you looking at Bharat Forge? What is your outlook for this company?
Bharat Forge in my view is transforming into a company which is not going to be a pure auto company. It will be auto plus a lot of other things and for it what is working now is that its core auto business is picking up, domestic operations are doing well, the high input price pressure of the last two years is going away and their foray into other spaces like aerospace, defence is now starting to give them some traction.

In the next two, three years, we will see sectors ex of auto also become big for them and margins will improve. In the last two, three quarters, people have been expecting that things will not be as good but they have been surprising on the positive. The management is a very focussed management and the valuations are reasonable in the context of the overall market, where the stock trades at around 18-20 times next year. I think it has a reasonable return potential.

You still believe Praj Industries can do well. It has been a company which has been there for ages and changes its evolution. So why next year, is this the time that all this effort would start to pay off?
Yes, you have put it in a nutshell in your last comment because they have been gaining orders and maintaining their market share in the entire ethanol business at 65-70%. Trust me, the Russia-Ukraine conflict is a recognition globally also that there needs to be some sort of fuel security from Europe. Also, a lot of fuel mandates are likely to come both on first and second generation ethanol.

In the Last two years, they booked orders but the profits did not come because steel prices went up sharply and they are typically a fixed price model contractor. Now with input prices falling we will see a huge expansion in margins.

I think this year profits will grow 60-70%, next year profits will grow 50-60% I think next year EPS should be 25 to 28 and to that extent the stock offers reasonable return potential.

What is your biggest regret?
No regrets per se but the biggest regret of any equity investor always is that you sold some stock too early. I think that might be the regret in some stocks which went up substantially after that.

Now you term it as FOMO or fear of missing out because if you sell out early, then you have missed out on that rally that a particular stock also gives?
FOMO is different. FOMO is when something has gone up so much that then you think that you have missed it and now you cannot make it. But in the equity markets, you never miss the bus, there is a new bus which comes all the time so you can catch that.

What is your Diwali pledge?
My Diwali pledge is to try and be always aware of what is happening globally and in India and not take too many risks and try to build a portfolio which takes optimum risk for optimum return, this is as far on playing squash which I do and hopefully carry it on for many more years.

What about Delta Corp? It has been a beneficiary of the unlock theme coming in but there are a lot of policy issues that come in from the government side as well. Why do you see this? Why are you picking this stock up and how are you seeing this move then?
I have never invested in Delta Corp earlier because I had uncertainties about the management, the business model etc. But now, given what has happened in the overall hospitality industry over the last two years, the way the rerating has happened, this is one stock where rerating started but stalled because of the GST issues, like you rightly said.

My view is that it is a hugely cash generating company and can generate Rs 300-400 crore of cash every year. It does not need debt to grow and it is in a business segment where it is one the only listed player in this space in the casinos business. I believe it is set to grow GST or otherwise. The only reason it is available so cheap is because of this GST uncertainty.

My analysis suggests that on the casino business, GST should not have any impact. Online, it could have an impact and online is a part of it. So overall, the valuation is not so much. While other hospitality companies like Indian Hotels was Rs 90 in Diwali 2020, today it is Rs 320-330 whereas Delta Corp has not gone anywhere. It was Rs 330 six months back and when this GST issued started and now it is Rs 210.

I find value at 13-14 times next year earnings and I believe that if uncertainties go away, the stock will do well.