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Porinju Veliyath bets big on these 2 Aditya Birla cos

In its Inside Kerala special, CNBC-TV18 spoke to Porinju Veliyath, MD & Portfolio Manager, Equity Intelligence India and asked him for his favourite sectoral picks. Veliyath says two Aditya Birla Group companies: Aditya Birla Nuvo and Idea Cellular . Read on to know why.

Below is the transcript of Porinju Veliyanth’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.

Latha: First up, what is the sense you are getting? We saw 2015 give a lot of gains for several midcap counters. Will 2016 continue in that fashion, or do you think things have gotten a little expensive in the midcap space?

A: It is very true that 2015 was the year of small and midcaps. And, even 2014 was something like that. And, I expect a lot of stocks which have not participated in the 2015 rally and 2014 rally, not all the companies, the companies of the stocks which are worth it. I think there will be a lot of movement even in the year 2016 and more importantly, I expect due to foreign institutional investor (FII) selling and general bearish mood in the global markets, our markets are really beaten down. Even, many largecaps which could be part of index, I am normally, I always ignore index stocks, but I am telling you this is the time, perhaps, you want to look at some index stocks, and I get a strong felling of bottoming out happening in the stock market. We had an excellent correction, more than a 15 percent correction from the top. And I am telling you, if in the next three months, if Nifty does not go to a new high, something like 9,000 plus, it will be a huge surprise to me.

Sonia: So, new high expected on the Nifty. Yes, you have been very optimistic even on Twitter. Let us talk about some of the stocks that you have picked up then. Since, you mentioned index stocks, the stocks that you have been bullish on is Idea Cellular. These telecom stocks have been hitting new lows recently, would that not worry you and do you think this is a good time to be picking up stocks like Idea?

A: Stocks going down is not to be worried, if you are holding it. It is an opportunity for those who are not holding it and if there is any potential for this stock to create wealth. So, I feel that – I was just talking about two stocks under Aditya Birla Group – the Aditya Birla Nuvo and Idea Cellular. I feel these stocks are worth for the next one year, 2016. At around Rs 47,000 crore market cap, Idea looks very interesting. It is a very healthy company. It has got excellent cash flow, around Rs 2,000 crore every quarter. And there is a fear factor about Reliance Jio. Reliance Jio will be launched in the production. It could be a disruptive entry in the market. I think even that fear, part of which could be true, even that fear is discounted at this kind of a price. The company has almost 20 percent market share in the market on a actual user basis. I feel Idea Cellular at Rs 47,000 crore market cap and a manageable debt, that can give decent return in 2016.

Latha: I understand that you have identified a couple of new stocks that you are interested in. Oriental Hotels , let us start with that since Kerala is the haven of tourism and this is also tourist season. What is this Orient Hotels? Do you already have an interest in it and what do you see as the company’s growth prospects?

A: It is very true. Kerala is really blessed with – people call it God’s own country. There is a lot of meaning for that. This is one of the best places in the world, I would say, a crowd across maybe, more than 30-35 countries. But, I have not seen a place like Kerala, structurally as beautifully as Kerala. There is no place in the world, I would say. Weather-wise, the greenery, the soil, the water, whichever way you take it.

Anyway, tourism’s one of the very important industry for India, going forward. The new government is also taking a lot of steps towards that. I was earlier talking about the Federal System. Accordingly, if Kerala is given that kind of management, if Kerala consolidates its strength as a state, and develops tourism, the tourism alone can make a USD 200 billion economy for Kerala in the next three years time. That is the kind of potential India is sitting on, especially Kerala is sitting on.

Anyway, Hotel industry, I believe, it is in a turnaround phase after many years of depression. Most of them were making losses, operational costs, high taxes, high tariffs. I think we are getting out of that era. Things are turning around. That is why I have been looking at some hotel companies. I messaged about Oriental Hotels. It is a beautiful company. They have around 10 5-star hotels in India. Today, Narendra Modi will be sleeping in one of the hotels in Kochi, of Oriental Hotels. It is all beautiful property like Taj Coromandel and all great properties, great locations, and these are all available at around Rs 400 crore market cap. Manageable around Rs 300 crore debt. I believe these kind of lower valuations have happened because of the sentiment was very bad for the last many years, about the industry, about the properties. But up to some point of time, the replacement cost, can come to the picture. And that could be major trigger for this kind of assets which company, they can be multi-baggers in the future. But the price has already seems to have moved up even.

Even Orient Bell was another stock I wanted to talk about, even that stocks seems to be on a higher price. I always talk investors, be price sensitive. Even if you are trying to plan somebody or of somebody is recommending on the television, or whatever research report you are reading, do not just go up and hear the stock name and go and buy at any price. It is very wrong. It is not that kind of a bullish structure we are going through. So, please be price sensitive and value sensitive. Then only there is a margin of safety, when you invest in the equities.

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