A value needs to be ascribed to a business and some of these fintech and consumer tech companies are going through price discovery, the problem is it is a painful process. How long do you think this will continue?
There are a lot of companies which are in established businesses. They are making money. The market sometimes does not appreciate it and tries to paint them with the same brush which is not appropriate. Once that correction is noted, we see price recovery and positive price action. As far as these new age companies – fintech and others are concerned where there is no certainty of business model and no certainty of profitability or even path to profit, it is a huge question mark.
We have been recommending investors not to buy and we will continue to recommend that. Now the question is when will they recover. Recovery ideally should only come where there is a path to profitability and when a genuine quarter-on-quarter recovery is happening. But that is not the case with either
or some of the other names at this stage.
I really do not know when they will recover and what will happen in the near future. Maybe in the long run, there will be some good businesses but that is yet to evolve. We do not know what that business is going to be, we do not know when that is going to be. So paying a multiple for such a business – whether the multiple is 30 or 50 – I am not sure about that.
: What is your outlook when it comes to the entire cement space given that we have seen a smart sectoral volume growth? Prices have recovered, the demand is looking pretty healthy. Do you like a basket of stocks within the space as there is so much to choose from?
Absolutely, in fact, I have been positive on cement. I have been mentioning that Q2 will be a bad quarter for many of the cement companies because it was the monsoon season and also there were some raw material cost pressures. But now we have seen demand recovery and a very good tailwind is expected as far as demand is concerned.
Now with demand recovery, a lot of capacity is going to come up but that is going to take some time. The guys who have established capacity on ground will benefit because of the incremental demand and they will get back pricing power to an extent and that is pretty much getting played out in this state. So I will prefer to go with the industry leaders.
is definitely worth buying at current level. Yes, there is a lot of excitement around Ambuja and with Adani’s taking over and there are talks about acquisition of the smaller players by either UltraTech or Adani, but these are all in the realm of speculation. Whether that will happen or not happen is uncertain and I really cannot comment or recommend an India Cement or some other company based on that.
If somebody wants to play cement as of now, I would recommend UltraTech with a one-year horizon. I do not think you will regret that.
How would you approach a stock like Raymonds? They have got lots of things supporting the brand. Do you think their entry into real estate is unnecessary diversification?
Well not really. Let me try and address the first question first.
is in a good spot. Undoubtedly the things have congregated in a manner which benefits Raymonds, the raw material prices are down. There is significant pick up in demand and Raymond plays in a segment where there is a lot of traction at this stage.
They are not a rural player. They are not where there is a bit of slowdown in demand. They are pretty much urban, semi-urban players and the marriage season is on and things like that. So there is demand and the raw material prices are down and the core business is on a solid wicket.
As far as real estate is concerned, they had a huge unutilised asset lying in Thane outskirts of Mumbai and it is definitely significantly valuable. They did some and are doing some construction and value unlocking there.
I think it is a good step and it will strengthen their balance sheet and get quite a bit out of this venture. I am not sure what will happen if they pursue the real estate as an independent standalone business beyond a point of time, it is too early to comment but as things stand today, I think there is a congregation of facts which is favouring Raymonds.
There is absolutely no problem in buying Raymond at the current stage. It has moved up quite a bit but we still believe that there is a lot of opportunity and a lot of price gap still which needs to be covered.
Where do you stand when it comes to ? Though the stock is in focus on account of the third interim dividend, Citi has a sell recommendation. It is of the view that the outlook for aluminium and zinc remains rather muted and that could be an overhang.
tend to agree with Citi. The whole issue is the Chinese demand. Once again there are massive lockdowns in most of the industrialised towns and cities of China, industry has been shut down. There is a whole lot of disruption. Now this has led to significant shrinkage in demand as far as metals are concerned.
China is the largest consumer of most metals, the ones you mentioned as well. Also they are one of the largest producers. So there is a massive disruption in the metal space and the prices are obviously not going to be what we would have expected the metal prices to be.
Under these circumstances, one needs to be extremely careful about metal companies. This is not the time to go and start buying metals. I definitely would recommend investors to stay away from the metal names at this stage.