A lot of action has been seen in BHEL counter. What is your take on the likes of BHEL?
They are probably entering into a better business cycle. Capital goods players have been confirming better time for themselves as far as new orders are concerned. BHEL is no exception. New orders are definitely driving this particular stock. Most capital goods players would probably see FY21-22 as a year of maximum growth largely because of the government’s infrastructure-related projects. Players like BHEL are likely to overcome earlier deficits in their books. The only challenge here is that prices of raw materials, particularly metals, have shot up. This will play a spoil sport as far as margins are concerned. As long as they pass it over, I do not see too much of a problem.
What is your outlook on sugar stocks?
Sugar is entering into a cyclical uptrend. It was very clear that after metals, it would be the turn of food commodities. Fortunately or unfortunately, sugar prices are going up because Brazilian sugar output is likely to fall to the extent of 7 million tonnes and we have surplus sugar stock.
Indian sugar companies are benefiting largely on two counts. On one side, they have had a good production last year and are likely to see better times because of a good rainfall. And at the same time, many companies are focussing also on ethanol which gives them a better yield.
So sugar companies would do far better than what they have done in the past. They are probably experiencing the best cyclical trend now. I would prefer companies with a good mix of ethanol. We certainly like the largest companies like EID. We like Balrampur and Triveni as well.
Do you believe that Adani Group of companies is now a missed opportunity for investors?
We have been into Adani Group of stocks, particularly
and Transmission for some time now. We like these companies largely because of the fact that in the initial years they are capex heavy. Once the capex gets completed, they generate significant amount of cash because their EBITDA margins are significantly on a higher side. The port business generates about 60% EBITDA and the transmission business generates about 25% EBITDA. The initial capex period is over and these companies are ready to give fantastic output. In case of Adani Ports, particularly after Gangavaram Port acquisition, their cargo handling capacity will go upwards of 500 million tonnes. The cash generated is now getting deployed into creating additional cargo capacity. Adani Ports is a better placed company because they are linking the entire country with different ports in western, eastern and southern regions. So one would still go long on this company for some time.
What is the outlook on ITC for long-term investors?
In the global market, investment funds are looking at companies that are ESG complaint. ITC has cigarette business and also other verticals. Unfortunately, ITC has refrained from taking a stance that cigarette business should be left out into the holding company and a separate company should be created for other verticals like FMCG, paper and paperboards, hotels and agriculture. As a result, the stock is languishing.
