What happened with Zee yesterday?
Zee from here on has a significant upside because after all the runup, it is still trading only at about 15 times. If you rewind back a few years before this whole management issue came about, Zee used to trade at far higher multiples and today it has an additional new leg of growth which was not there in the past and that is OTT. Zee5 reaches several countries and the content is a very important component of having an OTT. It is a great thing that the new independent directors have come in and they are going to have a greater control over how the cash flows are spent.
For instance, Zee wanted to make about 30-40 movies per year. Content is important because OTT or even mainstream channels run on content. Now at least with greater controls in place notwithstanding whether the top management person is removed or not, the stock has a very significant runway even at current levels.
What is your take on the cement and other companies that would cater to the entire capex scene?
Shree Cements is increasing capacities in two or three locations and that is welcome. The board said there is a need. Their capacity utilisations will run up in anticipation of demand, there is a lot of operating leverage. Clearly all the existing companies with brownfield, greenfield projects are at an advantage versus somebody brand new trying to expand their cement capacities.
In the last two years, thanks to Covid, activities had stopped and even before that, there was fairly subdued infrastructure related activity. There is room for bunched up demand in the coming couple of years. The need for capacity expansion by the cement companies will be taken positively by the market.
There is a trade in gas-based companies like , MGL. is more like a utility business. But GAIL has a long way to go in terms of what is happening in the gas based economy?
Gas prices globally have been surging lately and they are close to about $18 and they are regulated business in India and so the selling price is regulated as always. In the case of MGL and
, a positive earnings revision can happen because gas prices globally are higher than what is currently baked in. There is a delta of about 5-7%, upward revision of EPS. That and in addition, the trend of higher gas prices seems to be in place for the next month or two. There is scope for positional trade in these stocks rather than long-term investment.
In the banking space, how would you want to bet on these two positives of credit growth picking up and asset quality being maintained at good levels?
One of the big issues for the banking sector has been the low credit growth of 5-6% and now as the economy unlocks and second the salary hikes take place in corporate India, people will start opening up their purses and the credit growth is likely to pick up as we head into the festive season, assuming there is no third wave. That is a very important component which will determine the trend.
Also, the commercial vehicle cycle is yet to pick up. Even pre-pandemic, it was slowing down and many of the companies which lends to that sector, like IndoStar Capital — a NBFC — have been trading at very low valuations despite cleaning up the book and fairly adequate capital. Sterling Holidays is another consumer play and all these are dependent on credit growth coming back. Companies like that will benefit as will banking wherever there is valuation comfort like in IndoStar or even Axis Bank.
