“PSU banks overall look very attractive to us. What we have in terms of our top pick is Bank of Baroda, there we have a target price of 340. Overall sense is that H2 is expected to be a lot better compared to H1 and whatever volatility we have seen in the past in terms of performance should do better and this bank also should do well from the perspective of potential M&As or potential consolidation in the PSU space,” Pandey said.
He added that broader policy changes could further support PSU banks. “There are other factors which might also help if the government reviews the potential voting rights plus FDI guidelines. I think PSU banks will probably continue to outperform private sector counterparts,” he said.
On Kotak Mahindra Bank, Pandey said he remains constructive on the stock, highlighting improving growth visibility and easing concerns around potential involvement in the IDBI Bank acquisition. “Kotak on a standalone basis, we have been liking this bank because now they are guiding for one-and-a-half to two times nominal GDP growth rate in terms of advances. Credit cost has been a challenge for them, which they are expecting to trend lower,” he said.
He added, “So, we see this bank as growing at say 15-odd percent and ROAs at about 2.1-odd percent. So, we like this bank. And whatever overhang was there because they were one of the potential bidders for IDBI has been sort of put to rest. So, from that perspective we are very constructive on Kotak Bank.” He said IDBI Bank is not under his coverage.
On Tata Steel, Pandey said he remains positive and prefers the stock over JSW Steel. “We have a pretty constructive stance. Previously, we had a buy rating. This particular quarter, we have seen realisation being down by about Rs 3,300 per tonne, whereas impact on EBITDA was relatively less at about Rs 1,800 per tonne,” he said.
He expects margins to improve in the coming quarter. “Our sense is that with 12% kind of a safeguard duty coming in, in Q4 we would expect overall EBITDA per tonne to improve by or net realisation to improve by 2,300. And the good part is that going forward you will see bulk of the EBITDA growth is going to be driven by Indian operations, which means that this company will do some catch-up in terms of EV/EBITDA multiple compared to JSW. So, between the two we like Tata Steel more compared to JSW,” Pandey said.On the potential merger of power sector NBFCs, Pandey said his preference is for PFC over REC, citing long-term funding opportunities in renewable and nuclear energy. “In both these entities, preference is towards PFC and both of the companies carry advance book in excess of five lakh crores,” he said.
He highlighted the long-term opportunity size in nuclear power financing. “The broader perspective is that if we were to do a lot more in terms of financing in terms of renewable energy or nuclear power, nuclear power itself is a 20 lakh crore kind of an opportunity which could unfold and the potential merger there will create or you need bigger NBFCs to fund,” he said.
While near-term numbers may not be a strong trigger, Pandey said the longer-term outlook remains positive. “So, from a near-term number perspective, we may not be really sort of that constructive, but our sense is that from a bigger scheme of things this NBFC looks a lot more good to us.”
