Why Deepak Shenoy is betting on Hitachi Energy, RIL and M&M

“Reliance’s sum of parts is greater than the whole and a fairly large part of our portfolio consists of this stock. We are very biased here but the stock has gone nowhere for the last one and a half years or so. There are times when it will not move for a long time but long term, it will create a lot of value for shareholders, says Deepak Shenoy, Founder, Capital Mind.

You hold Hitachi Energy, right?
Yes, that used to be ABB Power India now it is Hitachi.

Continue to hold this one because I just read that they recently got a contract from NTPC as well, renewable energy that is?
Yes. We have held it for a long time. In fact, when they demerged, it was not easy to figure out what the price should have been but it has gone up about 3.6 times since that time. I still think there is a lot of scope left here specifically in high voltage DC, in some of the renewable energy transmission programmes and they do a bunch of things over there but the point is this is a space where expertise is going to be valued quite richly.

While there are other players in this area, this tends to be an interesting company. It is very richly valued but we are saying that this sector has a long rope and a long way to go. We might invest in other companies in the sector as well but right now, that is our biggest pick.

One more stock idea from you?
Well let me see there is a bunch in our portfolio. What we talk about obviously is something we are very biased towards. This is a very boring idea because probably a lot of people already own it but there is Reliance and even though the results recently were not all that great, it is clear that they have moved on from just being a petchem or an oil and gas company to more about retail or about the Jio business.

Now there will be the demerger of a financial arm which they will list separately and run their entire financial operations on it, including whether it is lending or insurance or broking or anything like that which provides an interesting opportunity as a special situation over the next year or two because they will eventually demerge Reliance itself into the component parts, which is oil and gas as one, Jio as one and retail as one.

So there will be three separate arms. I think the sum of parts is greater than the whole and a fairly large part of our portfolio consists of Reliance. So we are very biased here but the stock has gone nowhere for the last one and a half years or so. There are times when it will not move for a long time but long term, it will create a lot of value for shareholders.

It is not like one of those really small ideas which might give you a 100x return in two months. Everybody wants that nowadays but I am thinking more of a five year, six year kind of timeframe where this could give us better than inflation, better than index returns.

What would you recommend?
There is an interesting point. Maybe it is the power sector that is exciting me. There are a lot of bets there but I would not go into details because we are still buying some of these stocks. I continue to be a buyer in auto and I think auto is going to be one of the game changers in the next decade.

Whether it is OEMs or ancillaries, a lot of stocks make a lot of sense. One of them that one might consider is Maruti or an M&M which are the top end OEM players in the space.

Again, relatively unleveraged, we like M&M more. We own it because it has a bunch of ancillary arms as well which do a bunch of other things apart from auto. They are also the holding company for Tech Mahindra, Mahindra Holidays, Mahindra Life and have a defence manufacturing setup as well.

If I were to take another long term call over here, not just Diwali to Diwali – as I do not know how to play one year kind of thing without using pure technicals – something M&M or Maruti would make sense; more M&M than Maruti.

M&M at Rs 1300 too?
Yes. It is a long story. It is good, it sounds expensive but we have been looking at almost every part of that business and the price today might seem expensive but in the context of paying 80 times for a Nestle, one would pay Rs 1,300 for M&M which has much more of India’s growth story in its grasp than many of the FMCG companies which trade at way higher multiples.

I am just saying on a comparative basis but in five years, we might see the stock fall 40-30-40% but then any stock you buy can fall 30-40%. If one does not have that appetite, one should just buy debt funds or something because 30% is a given. We just have not seen it in the last 10 years but 30% is something one should always keep in mind that one will lose as soon as one invests in something.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)