This is the expiry week and the Bank Nifty seems to be all over the place. But just looking at the earnings, what do they indicate as far as charts go?
Kotak announced better results than I expected. HDFC showed some signs of credit damage in the economy. ICICI on the other hand has very stable asset quality. Most of the damage which is happening in accounts right now is going to be visible only in the September quarter because we are seeing even Kotak’s commentary that collections in April and May have been substantially lower. They have not used any of the Covid broad provisions they have had because those accounts probably did not turn into NPA in June end. It takes three months for an account to turn into an NPA. So probably, July and August month is when you are going to see actual NPAs, So, the provisions will get used next quarter.
The other big thing that is happening right now is that if businesses take credit from a different bank, they are supposed to close the current accounts with the other banks. This is a broad statement but if you have a loan from one set of banks and you are operating your salaries and all from another bank, that will no longer be allowed. So, that change is happening right now as we speak. Some of the private banks may temporarily suffer a drop in accounts but the public sector banks may gain at least temporarily. We do not have any financial exposure at this point. We will wait for the bank results to come in.
Are we seeing a rerating in hospital stocks or does it look like there is something more on the anvil?
There is actually a lot of interest in hospital stocks though with
, it may be a bunch of other things as well. We do not own it but right now one of the things is happening is that as we are returning a lot of procedures that have been delayed over the last one year, we are seeing a move happening in the Jan to March quarter. But subsequently also, a lot of return of regular operations will provide some kind of benefit to hospitals.
Also rates have gone up a notch because of Covid in general. That is also exciting the Street. I am personally waiting to see this theory play out. We might take a bet on the hospitals in general over the next quarter.
Are you a shareholder of yet?
As of the end of the day, today I will own one share. As a PMS manager, one is not allowed to do a lot of the stuff but we typically own one share just to be able to get access as a shareholder. But yes, I mean we are excited about the space. The valuations are very rich no doubt but valuations of a lot of such companies tend to be much richer than one is supposed to.
If we were to buy, we would probably buy over the next five to six months rather than make all our purchases at once. Even the one month window which is what anchor investors have to hold is a sticky factor. If they were to sell and bring the price down, that would actually help us participate better but the valuations are rich and we are probably going in with the same hope that this becomes a really big theme rather than just riding on discounted cash flow.
Aswath Damodaran feels that Rs 40 should be the fair value for Zomato. At what price level would you be comfortable buying the stock?
It has Rs 15,000 crore of cash. You have to deduct that in a way from when you calculate the enterprise value. It is not the same Rs 1,20,000 crore market cap that you are betting on the core business for. But in general, this changes two things. Firstly it allows them to raise more capital at a higher price sometime in the future, maybe six months-eight months down the line. That will actually reduce stress on current shareholders and improve cash reserves of the company.
Secondly, they can go into alternate businesses, a lot of which is unknown right now but the availability of cash and the fact that they are logistic services gives them an opportunity to grow broad. It provides optionalities not currently visible in the price. That might justify some part of current valuations. I do not think that from any traditional valuation perspective, any of these valuations can be justified. One is just betting on the future and betting on the fact that tech entrepreneurs in India have none of the baggage that some of the older heavy industries have and therefore can explore the unexplored and change the game in a lot of other industries, apart from restaurant service they are part of right now.
If only you have this future perspective, you should be investing in Zomato. We are very excited about it and we believe that the team has the capability to do it. Only time will tell whether the price is right or not.
