Based on yesterday’s AGR verdict, does Bharti become a clear buy?
Clearly, Bharti turns out to be a high-conviction buy and it’s because the stock has underperformed in the last two months, primarily due to this pending Supreme Court ruling on the Adjusted Gross Income (AGR) issue. . Now that the particular event is out of the way and the fact that there will be no additional liability on the part of other telcos like Videocon, they barely have to pay around 1400 crore rupees. So the whole event is now behind them.
Coming to Vodafone, I don’t think the 10-year extension would have made any difference for a company where annual EBITDA is Rs 6 billion and net debt is roughly Rs 1.75 billion. So unless there is a significant investment in the company, I don’t think Vodafone can handle this for too long.
So you are looking at a situation where there will be a market share gain for Bharti and Reliance and eventually for the next two quarters there will be a price increase. Bharti is in a much better position to profit from this whole situation and, except yesterday, stocks have not really behaved. Therefore, we are seeing a significant advantage for Bharti over the next year. I would look at a price target of Rs 625.
Simply because of the underweight position in steel, do you think there is merit in buying the space?
The trigger for the rebound in metal stocks came from the latest data from China, where steel production rose 9%. An increase in iron ore production and increasing demand in real estate, infrastructure, etc., are driving stocks. And from our perspective, what we like within the metal space is that there are three stocks, one is of course JSW Steel, Jindal Steel and Power and the other is Hindalco.
These stocks have skyrocketed in the last two to three months and in price target terms the upside potential may not be there, but if there is going to be industry turnover and a lot of interest in metal names, then definitely there will be something more positive for these names. We believe that you can participate in this space.
Voda Idea has a fundraising meeting on September 4th. Do you think they will manage to resurrect the situation in some way?
When we look at the current state of the balance sheet, they have this debt of Rs 1.75,000 crore and an EBITDA of only Rs 6,000 crore with regular losses of market share. The amount of money you need is more than Rs 2,5000-30,000 crore. It’s nice that they called a meeting and could do a fundraiser, but it’s unclear if that would be good enough to help them get through this current situation. We would definitely avoid it unless we have a clear idea of whether the fundraising will be sufficient to carry out these operations without major damage.
Pharmaceutical names like Aurobindo, Divi, or even Lupine have corrected a good 5% to 10% from recent highs. Is it the right time to buy a good leadership sector?
After a strong momentum in large-cap stocks and API-based mid-cap stocks, we have seen a small correction and when we speak to company management what is coming out very clearly is that in terms of their US business, the generic in part, getting a lot more approvals and the pricing environment is improving a bit.
The Indian market and companies focused on India due to gradual opening up are seeing traction in non-Covid drugs and other non-lifestyle related drugs. We are seeing some improvements there. The API part is absolutely outstanding because after an amazing performance in the last quarter, management tells us that it has more room to move forward in terms of growth. Companies like Laurus, Divi’s Lab, and to some extent Lupine, due to new product launches and specialty product portfolio, look extremely attractive now.
There was a supply chain disruption in China and some of the API manufacturers benefited. But now things are normalizing and API supply chains are not going to be disrupted. Would some argue that the kind of rally Laurus and Divi reported may not sustain?
What he’s saying is that part of the growth that Laurus has reported is due to this Covid-related business that has gone ahead and part of that is due to some problems on the Chinese side. If you look at the biggest opportunity in terms of APIs, including non-Covid business, given that the dynamics changed since China, management tells us that this story is not limited to just a quarter or one or two products. It’s broad-based growth that you are seeing and you will see a similar pattern in the next two quarters. So due to the price increase you’ve seen, we might feel like this is too much, but when you look at the numbers, it will give you a lot of confidence. We have great confidence in the revenue visibility of a Laurus lab and a Divi lab even at the current price.
What about some of the big tractors? Escorts are the most important thing there, but does that trend clearly seem to be high?
Absolutely. The monthly car number announcements showed that the tractor was a space where there was maximum surprise compared to what the market expected. Mahindra reported 65% growth, Escorts reported 80% and more importantly, this is a segment that is approaching the pre-Covid level of normalization before any other category.
You will see a few more improvements for these two pockets and we continue to like Mahindra & Mahindra because of the leading position. We also have Escorts under our cover, but the run up has been too long. In terms of a bigger advantage, we would be a bit careful, but the Mahindra seems to be an attractive buy.
From Rs 250 to Rs 600, Mahindra’s scope to see further PE expansion could be limited. Wouldn’t the automobile business be a limiting factor for Mahindra & Mahindra?
You are correct that the market had two concerns about M&M; One was their policy of allocating capital towards various products and the acquisitions they have made of SsangYong and all those things. The second is that overall growth in its core auto business was slowing.
The new CEO has been able to successfully address a large part of these concerns. You will see that a few more steps are being taken to revive the automotive part and if you see a widespread resurgence in the car then because of the kind of presence Mahindra has you will see some growth. I don’t know if they are going to be market leaders, but they will see decent growth and along with that they have tractors, which have a bigger share of growth.
In terms of valuations, for the past five years, Mahindra has still been trading at a similar type of valuation and growth is yet to come. Although the stock has risen, there is a case for something higher than the current price point.
Looking ahead, do you think the markets have enough credit to move to the next leap or do you think the road is going to be a bit slower?
In all this upward movement in the market, there are two factors at play; One is that global markets, particularly US markets, continue to be very strong; and secondly, incrementally, in the last three months we have been opening and the flow of positive data comes from a wide variety of sectors. As long as these two critical aspects are progressing well, there is no reason why you should see a big correction in the market.
A minor correction, some consolidation is going to be part of the game, but we should focus on these two and wherever you see new sectors emerging, be it pharmaceutical or metal, car numbers are still good, we are seeing good sector rotation. in Game. Overall, we remain positive in the market.
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