Green is hot. Green is selling and Indian industry is clearly headed for becoming more green. Reliance is doing it. Adani is doing it. Now Tata Motors is raising $1 billion for its EV business from TPG Rise Climate. What did you make of the deal?
While the entire business is still at a nascent stage, this transaction sets the benchmark valuations and it will force analysts and investors to value this business separately unlike how people used to value Tata Motors in terms of the domestic PV business and the JLR part on a DCF basis.
So the entire valuation parameters and the way in which the Tata Motors valuation was being made earlier is going to see a major change because of this development and that is very important. Another important aspect is that we are seeing a very interesting revival across the businesses in Tata Motors — be it the CV business or the passenger vehicle business. The kind of aggressive approach that Tata Motors has taken in terms of the Indian domestic PV business as well as on the JLR front, with the new range of products around EV is quite positive.
We think that since the institutional ownership of Tata Motors is much less because of the kind of cyclicality in the surprise element that the people had to work with, there is under ownership at the institutional level. Following this entire development, there might be more institutional participation and that would further re-rate the stock. In our case, we have set the target price of Tata Motors at about Rs 560 and this is a very good and interesting story around EV play.
IT companies are reopening their offices. There are reports now coming out that commercial real estate is on the cusp of a recovery. Is there a case now for more of a re-rating for the real estate stocks if commercial real estate is recovering?
In the last one year, the stocks have run up a lot. But if one takes a little longer period, five years or eight years or ten years, then real estate stocks practically have not gone anywhere and they have an extremely low contribution to the overall market — whether it is Nifty or the overall market.
Given the fact that the entire pandemic has forced people to go for better and bigger houses and the way the IT sector is performing in terms of more manpower addition and the double digit salary growth, the entire narrative is going to get stronger for real estate and this is a story not just for one or two years but maybe for a little longer, maybe three to five years
One could have names like Macrotech or Prestige, Brigade and
in their portfolio from a longer term perspective. They are basically high beta names. Whenever sharp corrections are made in the market, they will also correct but it definitely warrants a relook at this sector, given the kind of triggers or the positive data points we are seeing right now.
In the light of what is happening in Zee, is it worth a contra buy?
There are two-three points that I would like to make here. One, in the overall media space, we have seen the entire digital theme emerging and more and more companies focussing upon it and the entire IPO ecosystem around it. We have not really seen the media companies participating in the entire opportunity and media and the content are the integral part of that. So there should have been more focus on that part.
Secondly, about this Zee saga, what is coming out very clearly is that though the legal battle about the management and Punit Goenka being able to continue as the CEO and that part may take its own time and people will talk about it, but the pure business, the franchise and the valuation at which Zee is currently trading at, is definitely undervalued and there are not too many large players in the broadcasting space worth talking about who are making profits.
So depending upon whenever this issue gets resolved, people would want to have some pie of this franchise that Zee is available at. I definitely think that many investors would have a smaller allocation for a name like this and the fact that you have this controversy after a big bump up, the stock has actually consolidated or may be a little corrected also.
It makes sense to have some allocation for a business like Zee where the valuation looks quite compelling. If there is an early resolution with the credible management in place, there is going to be a significant re-rating over the next one or two years.
What is your assessment of the IT sector especially after the TCS result on Friday?
Post TCS numbers, there was a bit of a disappointment in terms of the revenue and margin and versus our expectation that the tier I companies would deliver a revenue growth of almost about 4% to 7%. There is a bit of a moderation in the expectations but let us see how the rest of the tier I companies are delivering the performances.
What is very clear to our mind is that the management commentary continues to remain strong even if one looks at the ISG concall and the guidance which they have given yesterday, the overall outlook continues to remain strong. There may be a certain moderation in certain geographies or certain domains but in the current environment, the investors would definitely want to allocate a larger amount of their corpus to such big IT names and midcaps as a theme has done extremely well.
It remains to be seen how some of the midcap companies which are quoting at much higher valuations compared to largecaps are delivering and if they are able to justify the kind of valuations that they are getting. Overall, we continue to maintain our overweight position on IT with Infosys and HCL Tech both being our top picks.
