Resist ‘cheap’ Jubilant stock temptation

By: |
Published: December 23, 2016 6:11:15 AM

Even as the recent sharp correction may make the stock look ‘cheap’, especially relative to its historical trading multiples, we would advise resisting the temptation.

Even as the recent sharp correction may make the stock look ‘cheap’, especially relative to its historical trading multiples, we would advise resisting the temptation. Near-term earnings, uncertainty aside, we also fail to see merit in the ‘long-term value’ argument that assumes a quick return to historical peak margin/RoCE levels and sustenance thereafter.

JUBI earnings, which depend disproportionately on the system SSG levels, continue to carry a high degree of near-term uncertainty in our view, expectation of an economic revival (post-demonetisation pain is over) notwithstanding. ‘Poor macro’ has been presented as a convenient explanation for the company’s subdued SSG print for the past several quarters. We find this too simplistic.

JUBI’s is a far more complex business and to that extent, one must not seek comfort in simplistic arguments. All we want to convey is that one would do well — (1) being wary of simplistic arguments and assume that 100% of the SSG weakness in recent times is due to ‘cyclical’ macro factors, and (2) erring on the side of caution as far as SSG-recovery timeframe and extent are concerned.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.