Management commentary to set the tone for IT; iffy on city gas cos: Dipan Mehta

Dipan Mehta, Director, Elixir Equities, says the question that everybody on the Street will ask the IT company is how big is this AI opportunity. Is it for real? Is it going to translate into double-digit growth rates for the next four to five years for IT companies? If we get a positive response over there, then IT will take a leadership position. The first few results will immediately set the tone for the entire sector.

All the Maruti magic yesterday pilfered through the entire auto pack as well. But how much more of a material gain do you think Maruti can get out of this UP discount registration now for hybrid cars?
Dipan Mehta: It is not just the actual material benefit that may or may not take place, but it is a signal to the other states as well that this is something which they can implement to reduce pollution and give encouragement to cleaner vehicles and that has what has driven the sentiment up in Maruti. If other states also follow suit, then certainly Maruti will have a phenomenal edge over its competition, because the best hybrid cars, the most popular ones are the ones which Maruti is producing. That I think is a clear signal that this is the way the government is thinking at the state level, maybe even at the central level and that could be very positive for Maruti. That is the reason why the stock has gone up because on the whole, the numbers that came through for June were pretty much tepid and this quarter also we do not have any great expectations in terms of top-line or bottom-line growth for Maruti because automobiles are going through a bit of a soft patch.

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What you are making when it comes to some of the stocks like IGL, Gujarat Gas etc, with sources indicating that some sort of tax rationalisation could come about soon? How much of a fillip would this be for the city gas distribution companies?
Dipan Mehta: The government wants to encourage more and more use of city gas for industrial as well as residential. But the big problem with the city gas companies is that three-four years ago, transportation was going to be a big growth driver for them, especially public transportation, because a lot of the taxis, the Ola, Ubers, and the buses were going the CNG way. Then we have seen a surge in electrification. These days, public transport, whether through Ola, Uber, taxis, or even buses is going towards more electrification – EVs per se – and that reduces the long-term demand for piped gas. On the whole, that is a big negative. End of the day, these companies are a bit like utilities and growth rates are not going to be that spectacular going forward. Also, some of the companies that were looking at getting the growth rates going through new territories has not come through. Companies like Gujarat Gas, which have got new territories, those growth rates also did not flow through. So, I am not that positive about city gas companies. No doubt, they are cheap. They are available at a reasonable price to earnings multiple, and a good dividend yield. So, in markets like these, when you are looking out for good cheap PE stocks, they certainly fit the criteria. But I am very suspicious of the growth going forward.

What are you penciling in when it comes to the earnings season being just around the corner? IT will kick off the earnings season. What are you expecting by way of numbers?
Dipan Mehta: IT will be the same old story that we have seen the last two to three quarters, stagnant to slightly lower earnings, that has been factored in. But more importantly, it is always the management commentary, how are they looking at growth going ahead and with the US economy what is their kind of assessment that once interest rates start to get cut over there, will it boost the discretionary demand for tech services?

Most importantly, the question that everybody on the Street will ask the IT company is how big is this AI opportunity. Is it for real? Is it going to translate into double-digit growth rates for the next four to five years for IT companies? That is the big question. And if we get a positive response over there, then I think IT will take a leadership position. The first few results will immediately set the tone for the entire sector.

You have got two new listings today. Emcure Pharma has been talked about and the other one is Bansal Wire. Are any of these new papers that you may have subscribed to other than these two listings which are slated for today too?
Dipan Mehta: No, I do not go for any IPOs because they are generally very expensive compared to the listed peers and I have noticed this trend that companies come with IPOs, and then for the next two to three quarters, the numbers do not come through. They are always disappointing. I want to wait for a year after the IPOs are over and done with to assess the true potential of the company, the quality of the management, the quality of their disclosure, and also the valuation.



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