What do you want to start with, there are two big numbers today SBI and ITC?
SBI clearly the numbers are expected to be good simply because the loan growth is picked up quite well. While yes, there is going to be a kind of a peaking out of terms of net interest margins but the whole loan environment is very strong as well as the asset quality for the bank and for the industry still remains robust. You can see some improvement in provisions. And importantly, the valuation is still very much on SBI‘s side. So I think there is a significant upside from the current levels for SBI.
If the call to buy SBI is so clear, why is SBI underperforming so massively this year?
The usual banking concerns that crop up every once in a while that has kind of hit the stock but fundamentally there has been one, the Adani issue after that and then you have one issue after the other.
But fundamentally, there is nothing, everything is actually pointing to a very robust in all its lines of businesses, whether it is the corporate book or whether it is the retail book. And therefore, I think today’s numbers will kind of be an indication that all is well with SBI.
What about your outlook then when it comes to the defence space? We just heard out HAL in their conference call very confident and sharing very optimistic outlook. Double-digit revenue growth, EBITDA margin guidance healthy, order book looking very strong. Would one tend to be very selective within this space and if so, what is it that you like?
HAL, Bharat Electronics, they all still look extremely strong. The beauty of all these companies is while for a long time they did nothing and now the order books are looking so very strong so it gives you revenue visibility for the next four or five years.
There can be quarterly mismatches depending on when the order book closes but the underlying are so strong because all those price margins restrictions which the government usually places luckily have not really impacted HAL. But Bharat Electronics is kind of settled up. So I think the outlook still remains very strong for these companies.
Just wanted to ask you what you are making of the entire QSR space especially in the light of Jubilant numbers which seem to be the best amidst the peers?
Indeed, I think in the case of QSR they have underperformed last year for the reasons such as high commodity prices, consumer demand was quite tepid and now the opposite is happening. Consumer prices and input prices are coming down. Companies are not increasing prices and just the cost decline itself will help to protect margins and volumes are coming back.
And if you look at all these companies, they are kind of expecting that inflation overall is going to come down if you fast forward another 12 months out. I think valuations are on their side. The whole QSR pack looks good.
Where within auto do your preferences lie or would you say stick by with auto ancillaries?
Within the auto, I think clearly while Hero Moto has run up a little bit, still valuations are in its side. They have a couple of products. Of course, that has been the problem with it that it does not have a product range which is selling well. Only one or two products are doing well.
But I think that product is going to pick up therefore Hero Moto has undemanding valuations. TVS continues to take market share and also make the correct spare moves in the EV space and Tata Motors for both its international exposure through JLR is looking good.