What is your outlook on Manappuram Finance which continues to ride the tide?
Manappuram has a few businesses and most of the businesses are doing well including the core business of gold financing. In fact, the momentum has picked up. The only sore part is that all microfinance companies have seen stress, delayed payments, moratorium and the possibility of NPAs building up. Thankfully for Manappuram, that is not a major part of the business. Manappuram has gone to Rs 185-190, given a decent correction.
So among financials, if one is looking for a company with good capital adequacy which will grow at a decent pace and has a secured business that will be less impacted than most of the other financials, then Manappuram stands out. This is a stock which we have owned for a very long time since and we continue to hold it.
There has been a mild outperformance in Wipro ever since the new CEO took over. From here to let us say next one year do you think Wipro is capable of both outperforming and turning around and could there be some rejig in terms of business approach and profitability?
Wipro restructuring was already on and then the new CEO has come in. If we look at the way the overall commentary in the IT space is coming up, the growth prospects for the industry seemed to be much better than what we would have thought when the entire coronavirus crisis broke out. There was an expectation of significant slowdown in the global economy.
The global economic slowdown is still there but these companies because of the entire digital move and the fact that there are significant investments happening in technology have been able to hold on. In an upswing, typically the weak players, if they have started to improve a bit, tend to do much better than the actual leaders. So I would agree with the hypothesis that the probability that Wipro could outperform Infosys and TCS in terms of absolute stock price returns over the next one year is very high.
“On a holistic basis, a trading rally in SBI could be reality. Whether it can become a longer term play at Rs 200 is something we still need to see.”
Is there a trading case of 10-15% or even 20% for SBI because the gap between Kotak and SBI is at historic high now?
The number of sales side brokerages which are pushing the SBI stock means the probability that SBI could do what you are saying. The overall market has been holding on till now. In a scenario where the markets will hold on to the probability that the biggest underperformer and the biggest value trap over the last few years in the large banking space. The only PSU bank that is talked of is SBI and that is happening.
If people want to play for trading play, they can, but it is tough to say if longer term prospects are improving because SBI has taken the lead in moratoriums. So it could take one of the bigger hits in terms of NPA conversions going forward.
On the flip side, the valuations of its subsidiaries have been trending up. The banking operations values have come down. So, on a holistic basis, a trading rally could be reality. Whether it can become a longer term play at Rs 200 for a much higher target price is something we still need to see. As September quarter results come out, we will see how things are.
Do you think there is still an opportunity to invest in Jubilant Food Works?
I personally do not think so because I have evaluated the company closely after the results and I believe that the management’s focus at this stage is on short-term profitability rather than on sustainable longer term operations. They are shutting down stores and they have moved employees to variable pay which looks very good to sustain profitability in the short run. But eventually, as the economy comes back and people are able to get fixed salaried jobs somewhere else, Jubilant might actually have to pay a higher price to sustain these people.
At this price and at this PE where it trades at 62-65 times next year earnings on optimistic earnings growth projection, there is very little value for any investor in this stock. Sentiments could drive it up a little bit but for someone who has held it for a long time, they could hold on for five, seven years and then they could make some money. But over the next one year, at these valuations and at this price, the return potential is very low.
Attention continues to hover on some of the key banking names and SBI in particular which way do you see it moving now going forward?
As we discussed, in the near term, given the fact that after the market move many of the brokerages are looking for stocks which have not moved and recommend SBI as a buy. We could see some interest coming through there but for a long term sustainable move in SBI to build up, the NPA picture has to be less scary than what it could be. Given that they have 9-10% under moratorium and 30% to 50% of that could turn into NPA, how does that sustain? There are several imponderables not only for SBI but for a vast majority of financial stocks. By October or when the September quarter results come out, we could have a greater clarity and would be able to make a better view.
Retail inflation could surprise on the upside and that could be a sentiment spoiler for financials.
What about Vodafone Idea?
It is tough to form an opinion on Vodafone given the fact that given the huge debt burden, calculating heir equity value is tough to define. The way they have been losing customers or subscribers either consciously or are letting go because they do not want to invest more in capacity building or because their network quality is such that people also believe that Airtel and Jio will survive and Voda-Idea will not survive. So it is a very tough call to play Vodafone on any sustainable basis.
For any investor, the positives are that the industry’s on the mend. Obviously the prices will move up going forward and all the industry participants are committed to that. Typically, when that happens, when the overall industry dynamics improves, the weakest player tends to benefit the most because it got hit the most also so to that extent we could see a greater benefit coming for Vodafone Idea.
So for risky investors, at Rs 11 price, it could be a bet worth taking on 1% or 2% of a portfolio. Personally, I would not. I would rather look at opportunities to buy Bharti whenever it gives a correction and keep on adding to that.
Hasn’t Bharti given a correction already of about Rs 100? It is up Rs 500 now.
Yes, so even at these levels, it is at decent prices to buy. At current prices, Bharti is a decent buy for long-term investors for sure.