Use rallies to get out of Cummins, avoid Tata Motors: Dipan Mehta, Elixir Equities

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Dipan Mehta, Founder & Director, Elixir Equities, says he does not have much expectation from the Budget and keeping that in mind, not looking at any trading or investing strategies.ET Now|Last Updated: Jan 29, 2020, 05.17 PM IST|Original: Jan 29, 2020, 05.17 PM ISTETMarkets.comCummins India: Get Out on Rallies
Rallies like this are opportunities to get out of Cummins India on a long-term basis and given the kind of position of the company and the fact that the power situation in the country has certainly improved, captive power consumption demand has remained subdued. That is one of the variables as far as Cummins is concerned. Keeping that in mind, as well as the overall slowdown globally for the products that Cummins manufactures, I would not be too optimistic on a long term sustainable, secular growth rate for Cummins. The valuations are also on the higher side.

Any rally for me is a long-term exit opportunity. Any revival that the Cummins management is speaking about is dependent upon a pickup in infrastructure spending. That will benefit many companies as and when it does take place. In order to play the infrastructure space, the better way would be to buy some of the existing infrastructure companies like L&T or some other engineering and construction companies and not necessarily Cummins which faces multiple challenges.

Jubilant Foodworks: Disruption in QSR SalesRising consumption and urbanisation is driving QSR sales and that is the underlying trend which favours these companies. But in the case of Jubilant Foodworks, they are launching new outlets closer to their earlier ones to beat slower same store sales. But that is ending up eating into the same store sales growth. They have other challenges as well including competition from Zomato and Swiggy which seem to have unlimited resources and funding to take on the likes of Jubilant Foodworks and even Westlife Development (its wholly owned subsidiary Hardcastle Restaurants holds the master franchise for McDonald’s) by taking almost every single restaurant online and facilitating food delivery from the smallest of the food outlets.

So a big disruption is taking place in the QSR space and that needs to be accounted for. Our view on the sector remains negative although both these companies are trading at good valuations.

Budget-related trades or Themes We do not have much expectation from the Budget and specifically keeping that in mind, we are not looking at any trading or investing strategies. Our only hope and expectation is that there should be no further taxes on investors. I know the entire street is expecting a cut in taxes — be it STT or long term or dividend distribution tax. We are not at all hopeful but if it does come through, then we will be delighted as everyone else.

JLR: Caught up in Coronavirus ScareChina is an important market for JLR and the rally in Tata Motors over the last few months was driven by very good sales coming in from China and the US market. If China sales sputter for JLR, then certainly that is going to impact Tata Motors stock price as well. But on the whole, our view on Tata Motors is on the negative side. It is a very difficult company to understand and there are far too many moving parts. Trying to get a handle on which geography has performed well for them and which has not is a very difficult proposition to understand and analyse. From time to time, you will have these rallies in Tata Motors and then there are massive selloffs as well. This is one company which has always caught the analysts and fund managers wrong. It is great for traders but from a long-term investment perspective, one should avoid Tata Motors. In any case it has not been a great value creator over the past several years or so.

Speciality Chemical: Rallies & AfterI think we are very positive on the specialty chemicals sector as a whole. Along with PI industries, SRF which have been rallying, one could add Navin Fluorine, Deepak Nitrite, Aarti Industries, all of which have done pretty well. But at the end of the day, these are commodity plays and while they have had excellent two, three years because of fundamental changes taking place within the industry globally, at some point of time, base effect will come into play. As prices move up, capacities also come back into production and that could prevent further price increases.

But there is no denying the fact that Indian chemical industry is more well placed than at any point of time in the past. A lot of global buyers are looking at having India at least as a major supplier so that they do not have to rely so much on China. So that is very positive and that has been reflected in stock prices as well. While maybe a year or two ago, they were great buys which were available at very reasonable valuations, a lot of the growth has got captured into these companies valuations at this point of time.

More or less, they are fairly valued and need to generate these kind of decent results for investors to keep remaining interested in such businesses. I would say from investors’ perspective, it is better to remain invested but would not want to contemplate fresh investments, given the kind of run up that we have seen in most of the stocks.

The only exception with usual disclosure is that we and our clients may be invested in Deepak Nitrite which has undertaken massive expansion through its subsidiary and that will eventually ramp up pretty well and contribute positively to the profits and generate a lot of value going forward.
Also ReadAmong telecom companies, Vodafone biggest worry for bankers: Dipan Mehta, Elixir EquitiesExpect a difficult earnings season, even Reliance may disappoint: Dipan Mehta, Elixir EquitiesAny positive news could tilt the market back above earlier tops: Dipan Mehta, Elixir EquitiesCommenting feature is disabled in your country/region. Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service1Use rallies to get out of Cummins, avoid Tata Motors: Dipan Mehta, Elixir EquitiesUse rallies to get out of Cummins, avoid Tata Motors: Dipan Mehta, Elixir EquitiesSmallcaps, midcaps to outperform Nifty; pharma earnings may surprise: V Srivatsa, UTI MFGovt investment needed to bring about a multiplier impact: Dilip Bhat, Prabhudas LilladherMarket won’t see selloff if it’s a 5 on 10 Budget: S Krishna Kumar of Sundaram MutualCreate more confidence, we don’t need out-of-the-box thinking in Budget: Keki Mistry, HDFCExpect a lot of growth by next festival season: Ramesh Iyer, Mahindra FinanceLegalise betting on cricket, tax bidis and FM’s fiscal problems will be over: Swaminathan AiyarWhere to look for FAANG stocks of the future: Rajeev Thakkar, PPFAS MFWe are focusing on North India for gold loans: VP Nandakumar, Manappuram FinanceManagement commentary, not numbers, important for Bajaj twins: Devang Mehta, Centrum Wealth

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