As a fundamental investor, it is very clear that the government will do nothing to shake the apple cart of IRCTC. Would you be tempted to be a contra buyer in IRCTC?
The government acted quite quickly in reversing the fee sharing and now the question goes back to the basics in terms of whether it will become a platform company which is what is driving up the valuations.
Platform companies revenue growth will happen over time and for that one needs clarity. We will stay on the sidelines until there is some more clarity on whether IRCTC as a business model will evolve into a platform company which will grow the valuations.
What do you make of the Reliance Jio phone launch? For the first time, Reliance is not trying to be a disruptor in the market and it is evident that based on the pricing that they have announced, telecom tariffs have to go higher?
Indeed and that is a very prudent well thought out strategy. Given that 5G will come down the road, the tariffs need to go up because data intensive traffic cost more for an operator and from that perspective, India has one of the lowest rates whereas the spectrum rates are one of the highest. So until this mismatch is corrected by the tariff going up, it is a very prudent move. We should expect more of the same in the coming quarter and a more realistic level of pricing given that now penetration of both data and call usage are at a high level by global standards.
Dr Reddy’s managed to beat margins. What about the pharmaceutical pack — Sun Pharma and Dr Reddy’s?
The FDI inspections are routine for the pharmaceutical industry. Pharmaceutical companies have underperformed this year but their growth remains intact going into the next year which is largely normalising the company’s revenue growth rates and product announcement. We will also see a slightly more stringent FDA action. But the industry itself has geared itself well to meet FDA inspections standards than before and the valuations are very reasonable. So Dr Reddy, Sun Pharma, Cipla all are positioned well.
What are you making of PSUs as a pack and not just IRCTC?
There are enough companies within the PSU where the valuations was never questioned. PSU banks is one. If one looks at banking as a sector — be it Canara Bank or Union Bank or State Bank of India, the largest ones have actually outperformed the other banking private names over the last one year or so.
The year to date returns are far stronger and despite the runup, the valuations are still pretty much in their favour, the books are cleaner, the provisions coverage have improved, the NPAs have come down thanks to an improvement in steel and other commodity related sector which was and real estate which was a source of concern for many of the PSUs. Suddenly those are not likely to be NPAs anymore.
Second is in the area of transportation — Concor.
Third is in defence — Bharat Electronics. It is one of the less known stories. They also have software as a service as a division. It all comes down to execution. The company’s beat expectations, the valuations are in line and the growth is very evident. There are enough pockets where a good amount of money can be made.
