Let us understand how you are reading Asian Paints’ quarterly numbers. The profit is pretty much in line at Rs 568 crore and the revenues have been strong. What are your key takeaways from earning?
I think the numbers are more or less in line with estimates. There is a slight miss on the margin front but that was known. In the last quarter they had already given a hint that gross margins were on the contraction side as raw material prices, packaging and other costs are going up.
I think the contraction is a little more than what was anticipated but the good part is that the volume growth has been very strong. Two months were wasted because of Covid. So it is despite those challenges that the company is able to garner this kind of volume growth. It shows their capability of reaching out to the customer through its distribution set-up. So no complaints, except that the stock always trades at a high valuation of 65 times. There is very little rerating scope from here. So if somebody is holding it, you should continue to hold. We do not have it in our portfolio is a disclaimer because we feel that from hereon the upside is limited.
The entire HDFC Group of stocks has been fairly muted of late. Do you think it is a good time to accumulate or the downside pressure will remain?
I think we have to wait for some more time. We are also on the sidelines. Although we have HDFC Bank in some of the portfolios since long, we have not added anything in the last four-five months. It is very difficult to understand how the pandemic is going to impact them. Some people say that the growth will come back and the impact will not be as severe. Being the leader, HDFC will be able to withstand it. However, in numbers we have not seen that happening. So if HDFC cannot handle that, then how others will be able to handle it? We have to wait for that.
We may have to give some more time for these problems to get over. And now with the second or third wave, it is better to stay on the sidelines. There is no negative view on HDFC Bank or ICICI Bank. Both of them are part of our portfolios, but we are not adding anything new. If there is a fresh trigger, then probably we will add more. Otherwise, we will bear this pain and wait for some more time. We are hopeful and confident that both these banks will be able to come out with flying colours over a period of time. Our long-term view remains intact but we are slightly cautious in the short term.
What is your outlook on real estate stocks?
I think the stocks have moved up ahead of their fundamentals. They do not leave too much of scope for further appreciation. We are playing this theme through home improvement and other allied activities. Cement stocks and sanitary ware like Cera Sanitaryware is part of our portfolio. Cera management has been saying that they have not seen this kind of demand in the last 7-8 years. Their business is related directly to the growth of the real estate industry. So there are ways of playing it. If not directly through real estate companies, you can do it through allied sectors. We are banking on Kajaria Ceramics and Cera Sanitaryware. A lot of cement companies like Shree Cement and ACC are there in our portfolios.
