Just wondering what to do with Bajaj Finance, their quarterly update is showing a bit of a shrink and given that this was festival season the numbers should have looked a lot different. Couple of brokerages are now seeing a price target of 6000 thereabouts but just wanted to know how you are looking to approach Bajaj Finance.
I think the loan growth is slowing down. If you look at Bajaj Finance basically the reason that you gave them a premium multiple over the last many years was because their loan growth was accelerating faster than other NBFCs who are in the consumer loan space. They did see that extra push and it is trading at about five-and-a-half times book value.
Now, yes they are all floating rate loans, majority of them so which means that as interest rates peak and they start sliding down, then you can see a further acceleration of loan book. But if you look little bit out into the future, Bajaj Finance and other NBFCs growth will come about because they are also getting loans from their digital space which Bajaj Finance has not been converting and therefore that is another big concern. I think at five-and-a-half times book we should rather stay away.
Kunal is insisting that commodities are not in a downturn. My view is slightly different. Let us see if you are on Kunal’s side or my side and take a side.
See the thing is basically if you look at the valuations of metal companies whether it is
, , , they are all trading at extremely low valuations so that is not an issue. It is only the outlook for demand which is the concern. Now will China come out of COVID or not has been a big concern and the volumes coming out of China also make a big difference.
So against this whole backdrop this is clearly a great time to buy metal stocks for a positional investment say you buy them at four-and-a-half time EV/EBITDA, you sell them at 4.75 EV/EBITDA that is a good 25-30% return.
Wanted to just get in your thoughts particularly on the back of the news flow for M&M Finance that the RBI has lifted curbs on the third-party repossessions. How are you looking at this coming in as a relief for M&M Fin?
It is clearly a relief because it has a direct bearing on the NPA profiles of companies in this space. Also this is a year in which if you look at the recent automobile sales they have been strong and they are likely to get stronger going into 2023 which is another positive for M&M Finance. It is a company which has gone through a fair share of high NPAs over the last two or three years and that will start trending down and will be a catalyst for the stock going forward also because of the new regulation.
Just wanted to understand within this entire infra play amidst the larger capex theme where is it that you are bullish and would you be aggressively using the current market decline to add positions if you already hold?
Current market decline would add into other spaces like agri commodities but in terms of infra, unless interest rates peak because with US continuing on its path I think RBI cannot pause. It will have to increase and it will pause much later. So we need interest rates to increase, food inflation to come down so that the overall inflation rate comes down. That is when we will see private capex picking up by corporates because they need to know their cost of capital when they are projecting up.
What is your big outsize bet for 2023?
I think outsize bet will be clearly on the export sector because of some of the inflation, slowdown and recession concerns in the US. If you still look at hiring trends they are very strong so which means that inflation and recession is going to be fairly shallow. So against this backdrop IT has corrected fairly significantly. They are trading close to their multiples. The fear is the new order book which has not slowed down yet but will slow down in FY24. So I think those are the concerns in the coming month or two.
Do you expect anything unique and different from TCS later this month, I think they are the ones who will start the earning season, you expect them to start the earning season on a sombre note or on a high note?
In this quarter there will be a margin uptick probably about 80-100 basis points for all IT companies and TCS. Even if the top line falters still the margin improvement will effect the bottom line growth so that will be the saving grace for all IT companies and so it will start on a sombre note. What we need to know is how the order book looks like. I do not think companies will comment on it yet that is probably a good quarter away.
Which side of the fence are you when it comes to in specific and what would be your preference within the entire space owing to these rising inflationary concerns?
Overall in the space basically companies have been able to pass on cost increase because of strong demand and so that is the good news for the sector. Marico in specific I do not really focus on. It is too niche a company for me and so overall within the consumer staple space volume uptick is key to be seen which will tell you the strength of the consumer. Product innovation is still dormant, valuations are still right up there so I think this would be a market performer as a sector and not an outperformer.
Views on the cement pack just owing to the fact that it has been dominated by lot of news for instance the buzz over the Adani Group checking into or picking up stake although both of this BSE is seeking clarification and Orient has said that they are not prevue to any such information. Then you had something like a yesterday which rallied very smartly 7% or so. What is your outlook on the cement for the year ahead?
If you talk about Orient Cement and stocks such as those, now one of the biggest advantages going for them is they are trading at extremely low valuations. They are trading probably at about $50 a tonne replacement cost now so whether there is going to be a merger or no merger that gap can narrow going forward.
I think companies like
, , are best poised because they will see volume growth, there is capacity utilisation in their favour which means margins will improve and valuations are clearly on their side.
Oil has come down from 138 to 78 how come that is not getting captured in , why is that not getting captured in Indigo, why is that not getting captured in , ?
I think if you look at two separate sectors; HPCL, BPCL are always subject to whether they will make money or whether they will have to pass all the fall in price to the consumers. So this is always playing in the sector.
For HPCL and BPCL that situation is unlikely to change and because of that uncertainty it is also tough to trade these stocks or invest in these stocks.
On the other hand, paints are seeing increased competition where until about three or four years ago Asian Paints and
were there in residential automotive. But then you had a lot of new entrants like . The peak of margins that the sector enjoys is coming off and the kind of pricing power they had is coming off. So lowered input cost will benefit all paint manufacturers including competition so I think overall the sector multiples will derate.
Given that Bharat Forge also gives you that defence exposure do you think these dips should be bought into?
I think you would see a kind of a pick up because still economic hiring is very strong which means companies are still expanding and they are not contracting. It is only the fear of inflation.
Bharat Forge as a stock is more dependent still on its export order book and defence will not really move the needle much. So I would kind of stay away from Bharat Forge for now.
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