Could UPL emerge as a dark horse?
UPL is definitely fitting into the overall agrochemical theme. The only thing is that since it is a global diversified player, it is not benefitting as much from the attention that the rural economy is getting because India contributes to about 15-20% of their business and we are seeing some challenges in other parts of its business. If you look at the overall guidance in terms of the top line and the operating profit margin, it is not that encouraging. At this point of time, we have a neutral rating on UPL though we like that space. We continue to like PI Industries, SRF and to some extent Coromandel Fertilizer within the rural/speciality chemical space.
Hindalco 5% higher yesterday. Does it make sense to buy Hindalco or is one better off staying with steel and not with the non-ferrous?
The entire up move that we are seeing in both steel and the non-ferrous metal pack is on the back of some incrementally positive data points. Today morning we had some positive data points coming from China. In India itself, we are seeing some positive data points in terms of the volume as well as the price. So you will see some positive movement. We are a little more positive on the steel part of the story compared to the non-ferrous part where we are seeing India specifics pick up and price hikes across HRC are much better. The third quarter could be much better than the second quarter. We like Hindalco. At this point of time it would make sense to play for some of the steel companies particularly JSPL because of the kind of product portfolio and the balance sheet that they have.
Do you believe there is still an investment opportunity within tyres?
The ancillary pack is showing positive momentum mainly because of the kind of noise in the volume growth that we are seeing in the OEM side. In terms of the midcap picks, one can definitely look at some of the tyre names. Something like Ceat. Balkrishna looks outstanding given the specialised business model that they have and even some of the battery makers like Exide, Amara Raja and other companies in the auto ancillary space. The auto space itself is showing much better visibility on growth and let us see how the festive season numbers look like. People are a little positive in terms of looking out for ideas in the auto ancillary space as well.
For an average retail investor and an HNI, Bharti Airtel is more like a trade where they have gone wrong and not made money. What is your view?
In case of Bharti, despite the consensus positive view and being considered a go-to-stock for a large number of investors and even the research houses, a cut of about 15% to 20% has been a bit of a surprise. We had a lot of positives around the AGR verdict and people were hoping for some sort of price increase soon to justify a higher earnings upside over a period of time. But since that is taking a bit of a time, there was a bit of disappointment. We also have to bear in mind that there were some technical factors like this MSCI rebalance and some outflows on account of that. At the current price point, we continue to feel that there is nothing to really get perturbed about Reliance Jio’s new price plans for postpaid customers. Bharti can definitely match many of those offers and has a much higher market share when it comes to the post-paid subscribers and eventually when we see the price increase, you will see Bharti performing.
In fact, it may start performing even before that because we already know that things are going to happen over a period of time. So despite the disappointment, we continue to have a positive view on Bharti at current price point.
The assumption was that a price hike will happen in January, it did not happen. Then it was expected in June, it did not happen. There is no certainty that a price hike is happening considering that Reliance is still in a mood to remain a disruptive player in the telecom space. What if there is no price hike?
We have two major players. There are still uncertainties about Vodafone and the net subscriber addition has not been there. The entire game is how many of these players are able to migrate their current subscribers to a 4G and postpaid regime, where you have a slightly better ARPU. So to say that the price hike will not happen beyond one or two quarters looks unlikely to us because at the end of the day, when you have these two big players and the market is a little saturated on broad subscriber numbers, the only way you can achieve growth is by price hike and we are still about 30-40% cheaper compared to any other market.
So I do not believe that companies would take a step which would be destructive to their overall business model and growth. It is a matter of time.We have seen in the past also where people had written off telecom companies, Bharti and Reliance bounced back extremely sharply. This is a call on the sector and you have to allocate a certain amount of your money towards Reliance and Bharti keeping in mind one or two year kind of growth visibility.