We can see a rotation taking place within PSU banks. SBI is giving way to PNB and BoB. Where outside of SBI within the PSU banks do you find comfort?
The two banks which would remain relatively better are Bank of Baroda and Canara Bank. Both the banks are candidates in the consolidation drive of the government. Also, their operation is a little bit similar to private sector banks. So, they have a relatively better perception rating compared to many of the public sector banks. So, these two banks other than SBI could be relatively better off going forward. Of course, the valuations have perked up too. They have almost a sub one kind of valuation. One could probably argue that given the kind of expectation we have from looking at the credit growth, some of these banks could churn out relatively better performance going forward.
RIL announced new energy plans at the AGM. But there was also news on petchem projects coming up in the UAE. What is your takeaway from the recent news on RIL?
At the AGM,
very categorically stated that along with Saudi Aramco would like to tap international markets. As a part of that strategy, they would probably be offering some of the new material blocks to the global players who are processing those materials for further value addition into the business and that could improve the list of petchem items.
So from the perspective of looking at the company supplying some of the main blocks of petchem as specialty chemicals, one could say that they are driving in the direction of creating the business which is more dependent on the global market year after and that is where, one could find the current case which has appeared in today’s morning businesses paper it could quite be possible that one could see in UAE they would have some kind of a joint venture on the petchem side.
On the other side, the important aspect is that they would be enablers as far as green energy is concerned. They would be supplying materials for production of green energy — be it in the area of solar, be it in the area of storage of power or in the area of hydrogen fuel cells. So once again, it is a very promising outlook wherein they would be a B2B player on this particular side of the activity which could allow them to expand their facility under the giga factories that they have announced so far.
Last but not the least, the consumer facing businesses — both retail as well as the Jio platform — which have been driven under the omni channel model and wherein online to offline, offline to online sales could take place.This particular company is likely to have greater reach to the customers but also significantly better margin compared to the retailing business.
In the Jio platform business, the consolidation is more on different verticals apart from e-commerce. It is now in agriculture to edu tech, health tech, and some other verticals as well. That sounds extremely promising. One could argue that business wise, this company has lined up their business vertical in a systematic manner wherein they could see around 25% CAGR growth in the working of the company going forward in the year after.
What is your view on the big tech names? Would you stick with TCS, Infy or would you look at the mid tier names?
We continue to focus on TCS, Infosys, Happiest Minds kinds of companies. We believe they have a reasonably good case for higher growth. In the case of Infosys and TCS and Happiest Minds, digital play is registering significantly large growth and that is why it is going to be the driver for the next three to five years. Most of their major customers would probably convert that business on a B2C basis where digital would be the larger play going forward.
Among the mid tier companies, some of the interesting companies are Tata Elxsi and KPIT, which are shaping up well as far as their business is concerned though they are mid tier smaller size companies. Their focus is very niche on that respective domain on which they are operating and we continue to like them as well.
What is your outlook on NALCO’s earnings?
The continued earnings prospects in the metal commodity space would help aluminium players like Nalco. The white metals look relatively steady for growth going forward. The current performance is against the backdrop of stress in the working that they have been facing up till last year.
Last year was extremely good as far as the metal commodity space is concerned, where not only did the realisations improve but it also allowed them to unlock some part of the capacities which some of these companies have not been able to do with the demand related situation. From that point of view, both the volume as well as the value play is now a reality for many of the metal companies and I am happy that after a long gap, Nalco started producing relatively better performance.
In Q4, there was a tax credit while last year, there was tax outgo. This year, tax credit is helping the company report relatively better numbers. However, the operational performance definitely remains relatively better compared to past years.
Where within the auto ancillary space and tyre stocks in particular, do you see a good opportunity for a long-term bet at current levels?
Fortunately, demand conditions in both the OEM market as well as replacement market remain extremely strong for most of the tyre companies and last year was exceptionally good. They had cost advantage last year which may not be the situation going forward in the current year. Now, most of the costs are at par level vis-à-vis the advantage that they had seen earlier.
So on one side, a higher amount of volume offtake is taking place on both counts the replacement market as well as the OEM markets. On the other side, we are seeing a situation where the cost is getting neutralised and they will definitely have a larger amount of profit performance to report based on the volume. Fortunately, that scenario is likely to prevail for a longer period of time.
The automobile industry per se is looking quite interestingly positioned including outside India and this particular space is looking much better than what it was before Covid struck last year. From that perspective too, the companies which are focussing on domestic as well as on export markets, would be relatively better off in the tyre space for sure. But other than that, in the auto ancillary space, those companies which have the tech enabled assemblies supplied to OEMs, would be relatively better off.
The electronic components in the cars are basically going up — be it for infotainment systems or entertainment systems. So this particular segment is likely to have a better amount of profit realisations for some of the auto ancillary companies and that is where companies like
are relatively stronger compared to others in this space. This space is looking interesting for the next three to five years.
