On consumer stocks
We will see very decent volume growth, particularly from the Q4 perspective. Given that we are in a semi lockdown situation, in certain pockets like Britannia, HUL and Marico, the volume growth could be a little better. Overall, though we do not expect a very strict lockdown, this thing really can’t be allowed to go out of hand. People tend to be a little proactive in terms of managing their normal routine by having enough stock and that might lead to volume growth for some of these companies. But in any case, we have a very positive outlook for companies like Britannia, Tata Consumer and HUL even otherwise. From a one year perspective, these stocks can give a decent amount of upside from current price point.
On 800 MHz spectrum sale by Bharti airtel to Jio
Bharti has reasonable spectrum in these circles there was no use of the smaller block of 800 MHz band and
Jio being the only player which is using 800 MHz, this was probably the best and the only option. It has been sold at about 47% discount to the recent auction pricing which makes it very useful for Reliance Jio and from Bharti’s point of view anyway they will get about Rs 1,500 crore. Given that Bharti has underperformed quite a bit in the last two-three months and as Q4 numbers are going to be out, there are expectations of a decent amount of EBITDA growth. So, there might be some positive rub-off on both Bharti and Reliance Jio on the back of that, But it is going to be miniscule in terms of development.
On steel price hikes and steel stocks
This quarter is all about metal and the general Street consensus is that there is going to be a lot of room for a positive surprise. One thing which we have to bear in mind is that in case of metals, for most of the companies, the EBITDA growth will come from higher pricing. There may not be a significant growth in volume on a YoY or a quarter-on-quarter basis. The only company which would deliver a very strong double digit volume growth would be JSW Steel. But we think that from a short-term perspective, Tata Steel can give a good amount of positive surprise but from investment perspective, we prefer SAIL, JSPL and JSW Steel because these companies have a larger story in terms of debt repayment and much better upgrades post Q4, the overall environment being better in India.
On PE multiples of Tata Consumer getting compared with Nestle and HUL
One has to see the way Tata Consumer has transformed in the last two years under the new management and the entire production rationalisation. Tata Sampann and the entire category of food including loose and the packaged tea means that there is going to be a significant bouquet of products under Tata Consumer with a very strong growth outlook for in terms of volume growth.
So when one compares the volume growth of HUL and Nestle with Tata Consumer, one can see that in the last two quarters, Tata Consumer has done much better. Apart from that, on the online side, Tata Consumer Products’ volume growth is in excess of 20%. Now that it is a Nifty stock and the valuation gap is still there between top FMCG company and Tata Consumer, people would prefer to have some exposure in it as the growth visibility is going to be slightly better than some of the listed ones. So though the stock has done so well, from a growth and quality perspective, people would prefer Tata Consumer.
On Bharti Airtel & Reliance
In case of Reliance we have already seen a big outperformance and it was one of the best performing stocks from April till December. After that, the stock is consolidating as we are not seeing any incremental growth triggers on the telecom part and a large part of the story in terms of retail and the O2C has been known. So the market is just trying to see some sort of a consolidation till we see fresh triggers in terms of the earnings growth for the next one or two quarters.
Unlike Reliance, Bharti has not been able to attract any major global investors and it continues to remain a very slow moving telecom play with no price increase. So after some point people have got a little frustrated with the fact that we are not going to see any meaningful earning growth at least in the near term. So the stock has correspondingly underperformed. But we think that telecom is not a short term or two quarter story. So people who have let us say one or two year kind of timeframe should definitely look at allocating a good amount of money into both Reliance and Bharti because a decent amount of growth will come through in earnings over next two years.
On Adani Group cos
The way the entire group has been re-rated by the market and the kind of market cap growth that we have seen over the last 6-8 months is mind blowing. Adani Port is something that it is not under our coverage but we think that given the kind of positioning that Adani Port has and the way they have gone about acquiring a few more ports, it means that a large part of India’s overall traffic market share would be there with Adani Port and that would be extremely encouraging for a large number of investors.
Apart from that, the way they have managed to acquire certain commodity based assets — be it coal blocks and certain other commodities and the fact that we are in a commodity bull run, the market may like that.
Unfortunately, for the entire group, we do not have any specific coverage so I would not be able to put out any buy recommendations.