Shailesh Saraf Of Value Stocks Sees Big Opportunity In Green Energy Stocks Tata Power, Suzlon, Others As Power Demand Stays Sky High

Green energy stocks and various companies that invest in different parts of power have strong growth prospects in the near future, according to Shailesh Saraf, managing director of Dynamic Equities and founder of Value Stocks.

Saraf told Benzinga India that he prefers the power sector due to the high power demand in the country. Here are the edited excerpts from the conversation:

What is your review of results so far? IT companies have surpassed expectations. Will their outperformance continue?

I don't think so. I'm not very bullish on IT. The sector is not showing tremendous growth. The growth is between 15-20% only. Other sectors are showing massive growth. There is higher growth in other sectors. IT is a good sector. But I don't think it will grow as fast as other sectors in the market.

So What are the other sectors that you are looking to invest in?

I'm very bullish on green energy — the companies which are making solar panels and windmills — in the power industry, the companies that develop transformers, transmission, heavy electrical equipment, panels, electric meters and high-density cables. These companies have huge potential as there is huge demand for electricity in the country. 

Waaree Renewables and Tata Power are doing well on the solar panels. In transformers, you have Voltamp Transformers, Transformers and Rectifiers. CG Power is doing very well in the transmission business.

Suzlon is doing well in the windmills. In the electric meter there is HPL Electric. I'm very bullish on these stocks.

Then the companies financing the power sector like PFC, REC and IREDA also look very bullish. Then the companies which supply solar pumps because they provide electricity to agricultural lands. Companies like Kirloskar Brothers, Kirloskar Pneumatic and Shakti Pumps these companies will also do well. 

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Don't you feel the valuations for these stocks are expensive given the run-up they had?

The valuations are not expensive. If the growth is very high, then you can check the price-to-earnings-to-growth (PEG) ratio. If the PEG ratio is below 1, then you can invest in that company.

What is your view on the railway sector?

We are very bullish on the sector. There is a huge wagon demand. The country needs around 6 lakh wagons and presently only 1 lakh has been ordered. So there is a huge demand for it. 

Do you think stocks like Jupiter Wagons and Titagarh can do well?

If they can continue growth of more than 50%, then they can continue their outperformance. They will be re-rated in every quarterly results. Because the growth is there, price-to-equity ratio will come down which will prompt the stock to go up. That's what has been happening in the last seven to eight quarters. 

How do you view the new-age tech companies and their quick-commerce segment. Zomato Has Blinkit, Swiggy is getting ready for its IPO.

In a vast nation like India, Zomato and Swiggy will always have demand. Because food delivery and groceries are daily items and they can provide that.

The only concern is that sales have slowed down in the past few quarters, especially for Zomato. Sales are not growing compared to earlier figures and the valuations are now pretty high.

Though they have been controlling the expenses and coming to profits regularly. If they manage the exciting sales growth then we will see the next round of buying in Zomato. If it cannot maintain high sales growth it will give sub-par returns. 

What do you think about Vodafone Idea?

I'm not very excited about Vodafone Idea. let them reduce their debts, let the government support come in.

I'm very excited about the telecom sector on players like Indus Towers and Tejas Networks. Tejas Networks has a ₹7500 crore BSNL order to supply Radio Access Network.

In the Q1 results, their sales have grown to ₹1,500 crore from ₹200 crore in the previous year. They also reported profits in the last two quarters. They also have a 50% market share in RAN (random access network) deployment. 

Indus Tower controls 25% of the tower business. The demand in the telecom sector is going to augur well for them. Right now only 15% of people have 5G in the country, there is still a lot of steam left. 

How do you view the auto stocks?

We are excited about the electric vehicles. The companies also supplying to EVs (electric vehicles) are also going to do well. Exide Industries and Amara Raja Batteries, are doing well and their valuations are also good right now.

In the electric scooter segment, Bajaj Auto and TVS Motors are doing well; Tata Motors, among the electric cars, because they have 70% market share so the electric vehicle market is looking very exciting. 

Bajaj Auto recently launched a CNG bike. Is that a good opportunity for them? 

Yes, its a good opportunity. When they launch a project we have to see how it performed for a quarter. We need to see the sales figure and how people have responded to it. Its only after a quarter or two that we can say whether a product is successful. 

How do you feel about the tractor and commercial vehicle segment?

Not very excited. Because the demand is slowing though India is an agricultural nation and there will always be demand for them, but we are focusing on themes which are for the future and for New India. So we are not focused much on tractors.

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