Is one better off buying Jubilant FoodWorks than Zomato because the former is still generating a lot of cash and is a high margin business?
I think both are very different companies. Zomato is agnostic to which restaurant is getting the order. To that extent, they make a lot of margin from the unorganised sector restaurants, who rely on them for their delivery.
Jubilant is a different business model where they have their own distribution network as well as they work through these companies. It is very tough to compare. There could be a scenario where Jubilant is not doing well, but Zomato is doing well.
At these prices, Jubilant is an obnoxiously valued stock. The management is always excessively bullish. They come out with new strategies but then the delivery of the new strategies has not been great. Last July, when they came out with first quarter results, they said that they are closing down a lot of stores, they will let go off a lot of employees and the focus is on cost cutting. Two quarters later, they are on an aggressive expansion spree. Getting into new categories will be margin dilutive in the initial phase. So I would be very sceptical buying into Jubilant Food now. In fact, I would strongly recommend that people who are holding this stock and have made good money should be looking at this price as a good profit-booking opportunity.
Did you eventually subscribe to the Zomato IPO?
No, I did not end up doing that.
It is quite interesting that of late Aditya Birla Fashion and Trent have been moving in sync with each other. What is leading to optimism on these names or this category?
I think it has a lot to do with the commentary coming out of these companies where they are saying that this time they are seeing a very strong bounce back in consumption.
In the last two years, the demand scenario in the apparel segment has been quite subdued. It is, in a way, an essential category and there is only so much postponement of demand which will happen. As things normalise, we will see demand coming back.
Valuations aside, the bounce back in demand for these categories of retailers could be faster than what people are expecting at this stage. That is something which could be rubbing off. Trent is a good company but I would be positively inclined on Aditya Birla Fashion and Retail.
Is there a merit in looking at aviation names?
It is very tough. The one stock which you would like to look at is InterGlobe Aviation. It may be just 10% off its recent high. In the context of the way the fuel prices have shot up and the fact that the pricing power is still limited, profitability could be under severe stress. These numbers are very subdued relative to what these airlines need to recover costs and get into profits. So I would not be a buyer at this stage simply because of the fact that a lot of revival is already in the price. If we get a decent enough correction then these stocks could be considered.
