The Citibank acquisition is coming, I would say, at a discount to what the original acquisition announcement was. What do you think it means for Axis Bank?
I think that certainly will add a couple of percentage points to their growth rates. And I think it is a very good deal from Axis Bank’s perspective. There are great cross-selling opportunities as well over here because Citibank did not perhaps have all the products which Axis Bank has got and Axis Bank also has a very good brand, per se. And this kind of an acquisition will be incrementally positive. It is not going to be a complete game changer considering the size of Citibank but nonetheless, I think, in times like this when competition is increasing in the banking sector and there is a great demand to go after big ticket customers, this acquisition is very positive for Axis Bank and you will see the results flow through itself from the next quarter onwards. And I think on the whole, it will be earnings accretive. And Axis Bank, per se, also is available at attractive valuations and cleaned up their balance sheet and on the whole, growth rates are good so positive on Axis Bank, more so after this acquisition.If somebody has a two to three year time frame, every bank now has a very different proposition. HDFC Bank, well, it is the merger, for Axis Bank, small acquisitions, for State Bank of India, pure solid corporate growth with a promise on ROA. What is the best combination for next two to three quarters or three to five quarters if somebody is looking for one big idea from the financials?
If you look at the IDFC First Bank numbers last two to three quarters, they are best in class on almost all financial parameters. They are amongst the number one or two within the space. Valuations are reasonable. They have kept their loan book pretty much clean, having written off a lot of the bad loans which came with IDFC and there were a lot of unusual and a lot of setbacks over there, but the company has absorbed all of it.
So I am very positive on that bank. I think it will be an outlier and outperform when it comes to growth rates. So that is where we are placing a lot of our capital. And again, I said as a disclosure that we have been invested in this company for a long time, so our views may be biased. Apart from that, I think HDFC and Kotak Bank also should report very good numbers and would have a sense of outperformance compared to ICICI and Axis, which I think is a bit of an over ownership situation over there.
What is the outlook when it comes to the entire hospitality theme. The fact that we have seen a rebound with quite a bit of vengeance and the kind of commentary as well, the kind of expansion plans that we have seen from a lot of these companies are in full throttle. If you had to zero in on picks within hospitality, what would that be?
Recently I was there at a presentation made by Puneet Chhatwal of Indian Hotels and I was completely blown away by the presentation. The top management had set certain targets three years ago and they have achieved beyond those targets at this point of time. Clearly, Indian Hotels is a company which is on the move over here. They are focussing on capital allocation. They want to improve the return on equity and they want to consistently improve their operating profit margins as well. And at this point of time, the kind of environment which they are operating in also is very-very positive. You do not get any more discounts from any of these hotels. The rooms occupancy levels are at very high levels and the average revenue per room also is sharply increasing, more like double digit growth rates for these companies. And mind you, Indian Hotels also is expanding capacity rapidly. The best part is that it is focussing more on India and has set up multiple brands within the hospitality industry. So, I would be extremely positive on Indian Hotels and this is the perhaps the best company to buy in the hospitality space. Another company which comes to mind, of course, is Mahindra Holidays, which also has been a quiet performer and very differentiated business model which has not yet been completely discounted by the market. So apart from these two companies, there are smaller players as well. But when we are seeing these kind of conditions in the hospitality industry, it is best to go with the market leader.