Would you bet on large caps or midcaps within the metal space?
The entire metal space — both ferrous as well as non-ferrous — is looking good at this stage. This is pretty much a global tailwind which is taking the metal stocks higher. The China numbers that are coming out are pretty impressive. Also restocking is happening in China for some time. This will ensure that demand for both ferrous as well as non-ferrous metals remain at an elevated level for some time. Under these circumstances, in India also, the metal companies will show good performance.
Out of the entire metal pack, steel looks good to me. Thanks to the anti-dumping duty and other structures which the Government of India has put in place, Indian steel manufacturers are in a much better position to withstand global headwinds if at all they come later. Amongst the steel companies, we like Tata Steel quite a bit. The domestic Jamshedpur unit probably is the most efficient steel manufacturer in the world and on a valuation basis, even today we find Tata Steel better positioned compared to its peers. So investors can look at Tata Steel at current levels. There are some problems in its European and particularly the UK operations, but it is a matter of time before that gets resolved.
What is happening with two-wheelers because they are seeing some profit taking? Do you think this dip is worthy of a buy as both Bajaj Auto and Hero MotoCorp stocks are down.
A couple of things are happening. One is as you rightly said, there is a bit of a profit taking. Second is the duty drop back which these companies used to get. There is a question mark and there is a problem. They will lose depending on the size of their exports, a reasonably good amount of money and that will definitely affect their profitability to an extent. So there is a bit of profit taking. But the way I look at it, these are very short-term issues and these do not move the needle.
As far as two-wheeler companies are concerned, both Hero MotoCorp and Bajaj Auto are benefiting because of the positive secular trend. Personalised transport is the way to go and two- wheelers have a significant longer runway compared to other auto stocks.
Also, rural demand which is picking up does give a boost to the two-wheeler sales numbers. We like both Hero MotoCorp and Bajaj Auto. Bajaj Auto on their sheer balance sheet strength as well as export markets and Hero MotoCorp because of rural penetration. Both can be picked up if you have a one-year time horizon at current levels.
Within the media universe clearly you have seen the subscriber additions go high, ad revenues are picking up and Zee seems to be a turnaround story that the market is betting on.
Absolutely. It is a turnaround story. If we look at the content, the programming and the numbers for these, Zee has been doing reasonably well for quite some time. Some of their shows and programmes are absolutely top class and that is getting good traction. Ad revenues are increasing and the economy is opening up gradually. It is expected that things will pick up even further.
The commentary given by Sun about the revenues and subscriber addition is very positive and that definitely will get replicated at Zee as well. The biggest concern was the promoter and those related party transactions. But the erstwhile promoters have stepped back and moved out and professionals are starting to manage the show. They have a professional set of managers running the show and they have a professional set of investors controlling the company. It is a fantastic situation.
Also, probably a strategic transaction may happen at some point of time whereby it can move to a different level and deserve a re-rating. I am not saying that is going to happen immediately or it is on the cards at this stage but that is a possibility in the near future.
But based on the fundamentals at this stage, Zee can be acquired even at current level. There are some concerns and question marks over their OTT platform. How much more investment needs to go into that? When it will start breaking even and competing effectively with the international players are the question marks, but otherwise it is a good buy at current levels.
What is your take on the hospitality sector? Do you think midcap names like Chalet Hotels or Hotel Leela, EIH look promising or even something like Indian Hotels?
Definitely these are promising stocks, there is absolutely no doubt about it and I like some of them. Chalet Hotels and Indian Hotels both look good but I am not sure whether the time to buy them is right now. Yes, they are available even now at an attractive valuation but as you rightly said, it is a long road to recovery.
It is not that things will improve immediately, a couple of more quarters of pain is on the cards. I will wait and watch carefully. Even before normalisation of revenue happens, it will take at least six months. So wait-and-watch will be my strategy irrespective of their valuation.
How easy will it be for Voda-Idea to raise funds because all of it is going to go into payment of AGR dues?
It will definitely be an uphill task, but if I look at the entire Supreme Court verdict vis-à-vis Vodafone-Idea, this was a write-off case completely. People were reasonably sure that Vodafone- Idea will close down if there is a significantly adverse judgement, with a 10-year timeframe for them to settle the AGR dues. That at least gives them a lease of life. If they can raise the money, Vodafone Idea will survive and that is a positive and the market is cheering that.
In fact yesterday itself we developed the view that the market was overreacting on the negative side as far as Vodafone Idea is concerned. It is a positive judgement even for Vodafone Idea. It will be a challenge for them to raise money but they probably will be able to rise up to the challenge and raise money and ensure survival of the business because fundraising is one part but the other operational parameters are expected to improve significantly from here on, including the ARPUs. If that happens, probably for a new or existing investor, there will be an incentive to invest at current levels into Vodafone Idea.
What is your stance when it comes to the FMCG pocket? How would you look at the overall rural recovery play within consumption and FMCG?
I have been bullish on rural recovery for quite some time and I have spoken to you about the same. A few things are happening; one is definitely that rural India is getting a lot of support from the multiple government schemes.
Second, the monsoon has been excellent and that will reflect in the rural economy even going forward. So, rural demand is here to stay. Under the circumstances, companies which have a significant rural distribution network in the FMCG and consumer durables space will do well. We have talked about Marico, Dabur but at this stage, based on valuations, I like Emami and Godrej Consumer.
Both these companies have good distribution networks and considering the peer comparison valuation model, they are looking more attractive. As far as consumer durables are concerned, we like Bajaj Electric, V-Guard and Voltas which can be looked at the current levels but on a slightly different theme.
Also in rural, we should look at the seed and fertiliser companies as well. In that space, Kaveri Seeds looks excellent as does Coromandel International. Both can be looked at.