Mayuresh Joshi, Head, Equity Research, India, William O’Neil, says “purely going by price action, it seems to be SBI at this point of time. But I think what has really transpired in terms of numbers for both these entities, State Bank has given a very decent set of numbers, except for a couple of those pointers. One, I think, the one off in terms of provisioning and slippages which increased a tad bit on a quarter-on-quarter basis. But the management sounds very hopeful in terms of Q4 performance being far, far better.”

What are your thoughts on M&M’s numbers? Yes, there was tractor de-growth, but lots are lined up in the EV pipeline as well. But the point is, at a life high, does M&M become a buy even at these levels?
Mayuresh Joshi: The commentary was exceedingly good for M&M post their earnings yesterday. And therefore, the SUV market share at 21%, the expectations in terms of the farm equipment solutions market and the market share thereof at 41-42 odd percent, that augurs well in terms of maintaining that and in fact, improving it going forward.

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So, the slew of launches, the backlog that it has got specifically on the automotive side of the business, 2,26,000 odd units, they are expecting to have order backlog of 50,000 units per month and they are having sufficient capacities probably to execute almost 49,000 out of that 50,000 every month as we head into Q4. And same for the farm equipment part of the business. They are introducing two or three variants within the 30 HP tractor market, which is going to be the highest market in terms of the hectares, in terms of ownership of land as well where 30 HP and below that becomes far more pertinent.

Therefore, expectations in terms of improvement in the first half of the next year with these models, the new EV models that can get introduced as well, I think that augurs well in terms of the expected financials to probably stabilise and also show a compounded growth going forward. Now, whether to buy or not at this juncture, how we look at it is that India, I think is a tad bit higher from key pivot levels. EPS rating is excellent as we speak. And therefore, anybody holding should hold on. Pullbacks can definitely be considered for this counter.

What is common between M&M and Escorts is the weak performance of their farm equipment division. So, a good correction has panned out. What happened to that entire story of Kubota making India exports hub of this vehicle and increasing the distribution network? Is all of that factored in or will it come gradually?
Mayuresh Joshi: It should come gradually. What really happens is that deficient monsoons and the irregular monsoons have created an impact in terms of tractor sales and the farm equipment business for the industry as a whole. So, Escorts, Swaraj, Mahindra & Mahindra – all of them have got impacted.

And now two key reasons to watch out for. One, expectation of a normalised monsoon heading into the next few months and if that probably happens, on a low base the expectation in terms of better numbers coming to in terms of sales volumes and better realisations that should augur well for the farm equipment business. For Escorts, the new variants that Kubota can also introduce and again, lower than 50 HP because a large part of the land ownership in India is highly skewed below that one hectare, which means that below 50 HP will probably work in terms of tractor and mechanised solutions and the export market as well. I think those synergies are obviously going to get played out. But I think it is for this primary reason that the stock probably came off. Now, if this plays out to their advantage with good monsoons and all these synergies playing out, I think the farm equipment business for Escorts, the farm equipment business for Mahindra & Mahindra should recover quite smartly in the first half of the next financial year.

Would you look at it fundamentally?
Mayuresh Joshi: There are two aspects here. One, I think the price reaction on the downside was primarily on the reason that you just alluded to, the bond repayments that are expected to happen for this financial year and the next financial year. Obviously, they need to have a lot of restructuring done on that part. They have taken a lot of cash out of Hind Zinc books, and therefore, I think there is not much cash to salvage from Hind Zinc’s balance sheet as we speak. To top that up, if you are looking at how the Chinese recoveries and LME prices, still expected to take at least two quarters in terms of price recovery for key commodities and therefore, the balance sheet operating leverage will take the second half of this financial year to probably come back in a significant fashion.

Having said that, any news on this front, if it turns out to be true, I think it plays out positively on two aspects. One, if the promoters do sell their stake and get that much amount of money onto their balance sheet, It reduces debt and at the same time some part of that money can also be used to reduce the pledges that they probably have and that creates a huge amount of difference as far as their interest servicing is concerned.

The second aspect is in terms of fulfilling those bullet payments or the debt obligation before timelines will also give confidence in terms of the parent’s health and the subsidy which is Vedanta as we speak on this front. So, yes, I think if this news turns out to be true, I think it should turn out to be sentimentally positive for the stock.

We were just stacking up SBI and HDFC Bank and what is going to have a more sustainable, meaningful move? Which one would you pick out of the two?
Mayuresh Joshi: So, purely going by price action, it seems to be SBI at this point of time. But I think what has really transpired in terms of numbers for both these entities, State Bank has given a very decent set of numbers, except for a couple of those pointers. One, I think, the one off in terms of provisioning and slippages which increased a tad bit on a quarter-on-quarter basis. But the management sounds very hopeful in terms of Q4 performance being far, far better.

And therefore, the expectations in terms of asset quality pressures, both in terms of price slippages being added, the kind of provisioning that they have done, the credit deposit ratios and the cost to income ratios heading downwards. I think all these are pointing out to better numbers as the management speaks from Q4 onwards and they will also be having a huge advantage in terms of their pegging of the MCLR where once the asset repricing starts happening with rate cuts at some point at the end of the calendar year should start abetting the NIMs and spreads in a significant manner. Again, from a valuation perspective, reasonably placed among the larger banks.

For HDFC Bank, again, I think it is all about the next couple of quarters in terms of how much of a recovery they can exhibit, specifically in terms of deposit growth. The management has been very-very clear. They are not going to chase growth and therefore they are going to be very-very conservative when it probably comes to lending at this juncture and therefore there might be a muted set of numbers over the next couple of quarters. As we head into an interest cut scenario, I think the risk-weighted assets, along with expectations of synergies with HDFC, both on the revenue and the cost side, should start catching up. So, it might go through a consolidation phase. SBI might outperform during the next couple of quarters compared to HDFC.

Have you tracked the story in Yes Bank and whether this could be the next turnaround story in the works.
Mayuresh Joshi: A lot of people are expecting that very frankly and what has really transpired is a lot of news surrounding this stock over the past few weeks. So, what actually comes out or not is something to be seen. Core numbers have been quite okay, nothing to write home about and therefore the expectation that one really builds in from Yes Bank in terms of a very strong recovery and that recovery coming in a quarter and sustaining it every passing quarter after that, has not really happened. Analysts are still waiting for those couple of quarters of sustainable recovery to come through on most parameters because some of the parameters do okay while the others do not at some point of time which means it becomes a very big set of numbers that the bank probably reports.

At this juncture, we like the market, to a large extent, are skewed selectively towards mid-banking PSU stocks and a few of the private midcap banking stocks. In the case of Yes Bank, we will wait for quarters numbers. A large part of the news and the price action is based on a lot of news surrounding the stock at this juncture.

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