Do you think there is a case for rerating in metals or has the market priced in the extra demand, the super cycle and all of that?
The big moves in the steel sector as well as the entire metal sector are kind of done. But from here on, Tata Steel may go up a good 20-25% as might Hindalco.
and Power has been held back because of the demerger of its power unit. These companies still have sufficient valuation comfort on their side. If you look at the recently announced results, 45% of the revenue of Jinda, Steel and Power came from exports. So it is accelerating. The export demand will continue to surprise on the upside for all these companies. Tata Steel is the biggest beneficiary. Hindalco will also benefit due to higher aluminium prices as well as consumer demand for aluminium in terms of end product because of the unlock.
So big money has been made but a respectable 25% can be made over the next one year.
Info Edge is doing exceptionally well. IndiaMart has also been doing well, especially since it entered the F&O space. Just Dial got bought out by Reliance Industries. IRCTC is another example?
Info Edge I was owner for anchor investors many years ago and I am glad to know that the company has grown by leaps and bounds. It is now actually a kind of a platform company. It has Naukri, policybazaar, Jeevansathi, Zomato. So it serves multiple segments and there are also lots of new segments where it has invested really well . So when you do sum of the parts (SOTP) of InfoEdge, then it is a question of how fast these portfolio companies can ramp up their operations. For example, Zomato is now an operating negative margin company. In three-four years, it will probably have positive operating margins SOTP for InfoEdge will move higher as companies do well.
As far as other online companies are concerned, IndiaMart will benefit from an unlock because many of its underlying companies could not deliver their services due to lockdown, can now do so increasingly. The consumer tech space as well as the ecomm space look very strong.
Where within the power space, do you find comfort, if at all?
Power demand in the coming months will go up as the unlock is happening and restaurants, factories are coming back with increased power demand and not to mention the coming winter. All that bodes well for the power sector in general but there has been a spike in coal prices and at the same time, no increase in the PPAs. It is not really profitable for power companies to import coal at the current high prices. So they will have to lean on Coal India.
Coal India needs to get its act together for meeting demand. NTPC is still the largest power company. It is an inexpensive stock and trades well under book as the PLF is very low. So the operating inherent leverage is very high. From a pure valuation perspective, NTPC looks good and so does Torrent Power.
If we are going to see power coming into focus and demand coming back, even the government is concerned that there is a coal shortage. Thermal power is still the predominantly used power in the country. What opportunity is there then for stocks like Coal India?
I would really stay away from Coal India because some of its pricing contracts are not commercially attractive. But it is the largest supplier of coal and has the biggest inventory of coal and therefore during times, when international coal prices move up, it is a great company. But I am not really sure whether it is a great stock. One can trade in it probably, but as a positional investment, I would stay away from Coal India.
