On
Tata Steel along with the other steel companies are seeing a cyclical rebound. The domestic volumes are very strong. EBITDA is expected to show very good margin improvement. Commodity companies normally do not see such margin improvements year over year. So, what is the weak point? The weak point is the European operations of Tata Steel. But spring is coming in Europe and demand should go up as the Europe economy opens up. There is yet another stimulus plan and a restructuring plan in Tata Steel. These are enough catalysts to keep the stock continuing on its upward journey. Even at the current prices, its valuation is still very attractive; it trades at 6-7 times EV/EBITDA on FY23. Notwithstanding the current weakness, the stock has enough upside left.
On
BPCL’s numbers were alright. They had some amount of inventory gains. Their GRMs were weak and that was kind of expected. If you look at its valuation, it is currently trading at probably about 1.2 times book which is a very attractive number. The overhang on the stock has been the pace at which the privatisation talks have progressed and the stake buyers who will come into the company. Until that is resolved, this overhang on the stock will continue.
We will wait and watch in that space and would not necessarily rush in even though the valuations look good.
On and the auto ancillary basket
The entire auto industry is still on an upswing because even after record sales, commercial vehicle sales are still down on a one-and-a-half-year basis. Once it normalises, supply chains will normalise and with the new industrial policy or rather the PLI policy after the Budget, we will see resumption of industrial activity after the lockdown. There is still sufficient upside on the commercial vehicle side and as far as the passenger vehicles and the two wheelers are concerned, there might be seasonal dips but the demand trajectory is pretty much robust.
Among the ancillary companies, even after the run-up, companies like JK Tyres, Apollo Tyres are still trading at very attractive valuations. JK Tyre is probably still trading at about seven times. They are looking very strong and we will make a double digit return over the coming 12 months in both auto and auto ancillaries.
On media stocks
Among media stocks, Zee Entertainment delivered a very good set of numbers. The stock came off based on a couple of factors; one, a certain amount of capex was going to be incurred in its various digital assets; second, the management commentary was not as buoyant as its numbers and that was surprising. But Zee5, their OTT platform is seeing very good traction. Zee5 is still a very new entity for the company in terms of its revenue contribution but has a huge takeoff runway ahead of itself.
As the dust settles and since the corporate governance issues have largely been resolved, it remains one of the premier players and still a very attractively valued stock, given its growth potential. There is a significant upside left in Zee Entertainment.
In case of Sun TV, their ad revenue growth was a tad lower than what was expected but valuation wise, it is a very attractive stock. There has been some amount of back and forth on potential news of buybacks etc which kept the stock volatile but both the companies are well placed and Zee is probably better placed right now.
On increasing allocation towards small and midcaps
Over the last couple of years, the rally has been very narrow. Among the Sensex or the Nifty50 stocks, only the frontline banking and IT and select pharma stocks had led the rally. Now, after the Budget and after the launch of the PLI schemes and after a resumption of economic activity, a number of companies which supply to the large cap as well as other companies have been going up.
PLI benefits a bunch of auto, auto ancillary companies. The infra push in the Budget is going to help the EPC companies — be it Nagarjuna Construction, PNC, Ashoka Buildcon. These plus the auto ancillary companies sit in the diversified basket and not in the Nifty. The action in the broader diversified universe will begin to come back because the valuations as well as policy push are on their side.
On Balkrishna Industries
Balkrishna has good numbers and it is an expensive stock. They announced some capex plans and will likely help them to lower their longer term costs. They will probably get some more incentives under the PLI and it is probably slightly different from their unrelated expansion a couple of years ago which had de-rated the stock. When a stock is priced with high multiples, then the room for disappointment is high. In the broader universe, there are lots of stocks which are not still up there in terms of their valuation. So, there is still room for the market to diversify and grow over time.
