Are you getting a sense of excitement in the Jaypee Group of companies or Adani Group of companies or even ADAG names?
Among these three groups, there is excitement in the Adani Group of companies largely because of the kind of price apperception that we have seen. Fundamentally, the current prices are reflecting a lot of optimism about the future which is a bit difficult to justify. But yes there has been a good momentum in a number of names. I really do not have a fundamental logic to back each and every company in the groups that you mentioned but they are placed quite interestingly well in some of the domains.
Take the positioning of Adani Total Gas. There is IGL which is largely placed in NCR. There is Gujarat Gas and MGL which are regional players. There is no pan-India player which can ride the energy shift from single digit to double digit and they have bid for a number of geographies. From that perspective, it is an interesting opportunity but whether that will pan out in the next two-three years can be justified by numbers. We really do not have an explanation for that.
How are you looking at the consumption basket? Asian Paints is hiking prices. How are you reading into how they are trying to mitigate the impact of high input costs?
One-third of the industry is unorganised and some of the unorganised players have got impacted — be it in terms of supply chain getting disrupted or manpower issues and which is why we are seeing healthy volume growth for most of the players on the paint side. This is going to continue for some period of time because structurally not everybody on the unorganised side is expected to come back. We are expecting a price hike to happen in June and that will mitigate some of the margin pressures.
But most of these stocks are trading quite expensive. I would suspect that they will be able to beat the overall market. In isolation, they can keep doing well but I will prefer something like Mold-tek Packaging which derives 2% revenues from Asian Paints. They supply containers for paints. This company is trading at about 16-17 multiples, double digit top line and bottom line growth with steady margins. One can play the paint cycle through a company like this. But in general, in case of consumption, especially FMCG or some of these pockets may not be really able to outperform the overall market. The unlock trades look a lot more attractive compared to some of these segments.
What is the outlook on Jubilant Foodwork as well as the overall valuations?
In FMCG, we have a largely bullish bias in
. This is one company which is trading relatively cheaper compared to the rest of the lot and which is why we are on a selective bias there. The rest of the pack has been trading pretty expensive. The midcap or the smallcaps are pockets — be it hotels, logistics, OEM or the auto ancillary space. They look a lot more interesting with decent multiples and a decent opportunity for growth. Even the textile space is looking attractive. We cover Indo Count. So a lot more broad-based opportunity is available for investors. There are a couple of segments which are expected to do well and in this pocket, we are seeing a decent amount of growth with reasonable valuation. That space looks a lot more interesting.
What is the best way to look at PSU banks? The top two or three PSU banks apart from SBI, BOB and even Can Bank, have a lot of headroom left?
Valuation wise, a lot of PSU banks look quite cheap. But there is probably more clarity in banks which will eventually get sold. Something like IDBI Bank or look a lot more interesting. The asset quality concerns are there across most of the banks excluding SBI. So wherever one expects a change in management, subsequent to change in ownership following the government divesting its stake, are the potential pockets one can look at.
In anticipation of divestment, the government has already cleared some names. Once can look at those banks from a trading perspective over the next three to six months.
What is the right PE multiple for Tata Consumer? Why are markets excited about revisiting Tata Consumer?
A lot of things are changing structurally for Tata Consumer. One, there is a global tea business which is not growing and which has lower margins. The domestic business has started picking up and the margin profile is quite higher. Although this business got impacted in the near term because of a 50% appreciation in tea prices, these will subsequently get passed on.
In FMCG, rather than looking at PE multiples, it is important to look at when the opportunity would start unfolding. In the food business, a lot of formalisation can happen. We have been seeing formalisation of demand happening in a number of categories like poha, dal and others. It is much more interesting compared to a totally penetrated category which Colgate Palmolive serves. One does not expect double digit growth in that segment. But in a food business. a lot of shifts can happen from the unorganised to organised or formalisation.
That is why Tata Consumer is an interesting play and a portfolio pick despite higher multiples. It can continue to do well, something what Nestle has already displayed compared to the other peers because Nestle commands one of the highest multiples. I am no expert in saying 70 multiple is good or 80 multiple is good because ETF flows do not depend on PE multiples. It is just allocation of money according to the weightages in a particular index.
But from an opportunity perspective, Tata Consumer still looks pretty good given the formalisation we can expect as more and more people would want to switch over to this side.
has managed to deliver a very strong set of numbers for the fourth quarter. Your view.
We do not cover Jubilant Food but in the QSR kind of format, they have got one of the highest gross margins and so their business model is one of the better ones. We really do not cover it and I will not be able to comment specifically on this stock but in general, we are not expecting a bigger outperformance in the FMCG segment. They did their job and the markets were down and now we really do not expect them to keep outperforming the market. So a decent set of numbers probably but may not really help it in terms of outperforming the market.
Where is Lupin headed? While Cipla and Dr Reddy’s have hit highs, Divi’s is in a different orbit, Lupin is the struggling one.
Some of the key facilities especially like Goa are still under import alert and which is where the challenge lies for this company. There is no excitement for branded generics or generic players having exposure to the US market. If somebody has to look for a play there, something like Caplin Point or Ajanta Pharma look interesting because their US exposure is relatively less.
The pricing challenge in the US continues and while the US is unlocking, product approvals will also happen and even plant approvals will happen. That creates a bit of anxiety as well. Where things are quite clear or interesting is the CRAM space. Divi’s and Laurus are the names here. If somebody has to look for the branded generic side, then go for a decent blend of companies like Cipla and Torrent Pharma which have got a decent share of or a good share of revenues coming from the domestic side.
Otherwise, pure US exporters or companies deriving bulk of their revenues from the US are still facing challenges and it is very difficult to take a one-year or two-year view. As I said, there is opportunity on the CRAM side. I will not be surprised if Divi’s with the kind of numbers they have been delivering overtake Sun Pharma in terms of market cap in years to come. The domestic market is also looking decent and then if you have to look for export opportunities, then you have something like players like Caplin Point or Ajanta Pharma.
