Managements of the biggies like Axis Bank and Bajaj Finance are saying they can ride out the Covid storm this quarter and that they are well buffered as of now unless something like national lockdown happens, What did you read into Axis numbers?
If you look at the Q4 numbers, one thing which is coming out very clearly is that the financials and particularly the corporate focussed financials are reporting better numbers on most of the parameters like incremental slippages and loan growth and that is giving a lot of comfort to investors.
More importantly, from an investment perspective, we are estimating that at Rs 16,000 crore, Axis Bank FY22 profit would be the highest in five years. The net profit that Axis Bank reported from FY17 to FY21, would be less than the number that Axis Bank is expected to report in FY22. That will make it far more exciting for investors. So, it is a high conviction idea for us with a 30% upside.
is like the gold standard which nobody wants to ever sell. But if somebody has to put in capital for the next three years — Rs 100,000 in SBI versus Rs 100,000 in HDFC Bank, where do you think more returns would be made?
It is too simple a question. Given the fact that there has been such a big underperformance in both, the operating performance as well as the entire operating matrices are showing much better trends. I would definitely go with the
and to some extent maybe one of the corporate banks — or Axis Bank.
Incrementally, over the next five years, ICICI Bank, State Bank and Axis Bank will deliver far superior returns compared to a Kotak Bank or an HDFC Bank. I definitely think that one should really allocate more towards these names. HDFC Bank and Kotak have been amazing performers in terms of franchises, in terms of asset quality and top management pedigree, but when you look at data points, valuation and incremental growth part, these corporate banks are looking far more attractive from a risk to return perspective.
What about Britannia? What did you make of the earnings and about balancing the hike in raw material prices?
Overall, the numbers were pretty okay, about 8% of volume growth. The mix deterioration is leading to EBITDA mess and the management has taken price hikes and we do not think there should be too much issue in terms of the margins per se.
The only thing is that because of the nature of the lockdowns that we are seeing and the volume growth expectation that people had, based on last year’s numbers, there might be a bit of readjustment there. For example, last time the volume growth was about 30%. So what kind of volume growth market could expect would be a critical variable. But overall, we like Britannia as a company and we have recently upgraded it to buy. If there is any small correction because of the numbers or margin pressure, we would use that as a buying opportunity.
Where do you stand on the speciality chemical space? Are there still buying opportunities here?
The reason we are seeing increased action in the speciality chemicals/agrochemical space is because of the way the agri commodity prices are moving up globally. People are realising that if there is going to be a bull cycle for this space for next two to three years, then this space would again have a good amount of visibility. We have been liking companies like PI Industries and SRF. We do not have more midcap companies like Deepak Nitrite and Rossari Bio, etc. We think that despite the two-year strong move, incremental visibility and data points continue to be positive for this space and we would be more comfortable buying into the names like PI and SRF at this point of time.
What is your view on a conservative stock like CDSL? It is one of those silent outperformers and has been a big wealth creator.
CDSL fits into the entire theme that would cover the exchanges, brokerage houses and AMCs because of the way digitisation is happening and the increased number of clients coming into the system. There is a sense that that entire theme will deliver very high returns and from an allocation point of view, people consider it as a small allocation theme but the kind of money that can come in because of the large AUM could be very big.
CDSL numbers have been very strong and they have gained market share over NSDL. The last two years have been exceptional. People like some of these names and because of the lower floating stock, the impact could be very high.
How is the IT space holding out? What are you making of the new age IT space along with of course the recently listed Nazara?
Other than the IT services companies, the entire digital theme with names like InfoEdge, Matrimony, Affle and even IndiaMart has definitely seen a lot of interest. These are the only companies available in India for participating in the digital theme. Whenever we see incremental positives in terms of the IPOs being announced or lockdown-related stuff, people want to focus on these names. Naukri is something that we have been liking. The good part about Naukri is that it is not a pure startup story with a lot of uncertainty. Here, we have a core hard earnings growth and cash flow from the main portal and now we are seeing monetisation happening for the investment which they had made. So definitely it is something that people would want to participate in and we continue to have a positive view on Naukri.
Growth is decent in IT stocks but multiples are extended. In the second half of this year, can IT stocks grow?
People have not been excited about the current quarter earnings because the stocks had run up quite a lot in the last two or three quarters. There was not too much of an element of positive earnings surprise but the managements are saying that the demand environment and the deal pipeline is very strong. Over the last two or three quarters, there has been a smart rotation of the sectors. In between, there was a bit of a lull in IT and pharma and the financials and autos started performing well. But the overall visibility and the comfort that people would have about a stronger balance sheet, high ROE etc. means IT companies definitely merit a good amount of exposure.
One more point is that in the US, this quarter, by and large, most of the IT companies have delivered very strong numbers though they are not very comparable but for many of the companies, Indian IT companies are providing some kind of IT services. The offshore visibility would come from there. Overall, we are continuing to have a positive view.
None of the strategic PSU sales have gone ahead. Do you think one should avoid buying into PSU stocks and especially the ones that are on the divestment list?
The divestment related story is always going to have its own dynamics in terms of delays and the kind of investors that come in. We should not try to have some sort of a timeframe drawn for it but if you look at the PSU sector per se, some of the banks like State Bank of India has done well and no matter what happens in next one or two years, that story remains very good. It should give a very good upside from the current levels.
So it remains a very positive stock from our point of view. Some of the metal companies like SAIL or NMDC have their own stories and no one is really trying to play on divestment or any specific action from the government. But the way the entire commodity dynamics is playing out, SAIL and NMDC would continue to do well. So selectively, wherever there are triggers, people would want to participate because we are in a market where there are incremental ideas and people have a liking for it. So from that perspective, some of the PSU names will fit in.
