Why has the Mahindra Group picked up stake in RBL? They are saying we do not know but we are investing because we want to understand the financial sector and the risk and all the other factors associated with running a bank. I mean, by acquiring a 3% stake, Rs 400 crore of non-core investment, what are they trying to do?
RBL is a very strong franchise. It has been turned around and my guess is that I think they are bailing out of Kotak Bank and taking money into this bank. That is my guess because Anand Mahindra was categorised as a non-promoter in Kotak and now they are putting money into this venture because they are getting a very well run and a very good franchise at very cheap valuation. So, I guess they are doing that and possibly the story going ahead would be that they would want to merge M&M Financial with RBL. That is my guess, there is no statement from anyone. But that would be the logical way to go given the fact that you do not have two or three finance arms in the same company.
So, I am just trying to put two and two together here. Okay, let us assume that they eventually use RBL, increase their stake and merge Mahindra Finance into it because they have been wanting to take Mahindra Finance to the level of a bank. Then is Mahindra Finance a stock to buy? Is RBL a stock to buy or is Mahindra & Mahindra a stock to buy or none?
RBL is definitely a stock to buy. So, irrespective of Mahindra putting money into this stock, we had a buy on this stock at Rs 130 with a target of Rs 260. Today, we are sitting around 210-220 odd levels still a way to go and our estimates were very conservative. When we had spoken to the bank, they were very aggressive on our numbers and they were of the opinion that we are being quite conservative. We believe that with Mahindra coming in, corporate governance is strengthened and there could be a re-rating of the multiple of RBL Bank.
Well, what is standing out to you in terms of earnings? We, of course, got M&M, SBI and a lot of other names recently. Anything that caught your attention?
Zomato was a very strong number for us and it firmly dispels all the naysayers and we believe that this stock can now really move up. So, a path to profitability has been established. Blinkit has been absorbed well, costs have been rationalised and we think that from here, over the next couple of years, 50% growth on top line and sharp growth in bottom line is what we are forecasting going ahead.
What is the right way of looking at the right PE multiple or the valuation for Zomato? What do you think is the deserving market cap because now it is almost Rs 85,000-90,000 crore, north of about $10 billion, that is not cheap by any yardstick.
We have built a DCF model and as far as numbers are concerned, we believe that a price of Rs 140 in the next couple of years is what we are gunning for or we are looking at a 50% upside from current levels.
The other thing which is happening in the market involves this manufacturing vertical and the fact that the government has now put import restrictions on laptops, tablets, etc. That is giving a bit of a pull-up to the likes of Dixon, Amber and the other manufacturing names like Kaynes, Syrma SGS, etc. Do you see more upside on these names or they are getting a bit more toppish given the valuations?
The growth story is intact but the valuations are a little demanding, little discounting. I would be a buyer on these stocks definitely but at slightly lower levels or on 5% to 10% dips on these stocks.Which is the other big consumer fintech which could go the Zomato way now because now there is a sudden realisation by market participants that these companies are here, they have a viable business model and they are speaking the language of capital markets, not PE club.
Paytm is the way to go. We are very bullish on Paytm. I had spotted this change in trend about a year ago but the stock came down by half from the time we spotted it, but now it is back to 800 levels. This stock can rally very aggressively from here and my personal internal target on this stock is around Rs 1,300-1,400 per share. Again, we are using the discounted cash flow method to value these stocks and that is what we are looking at over the next couple of years.
Nothing wrong with SBI numbers prima facie; there’s a little bit of cyclicality in NIMs but brokerages, at least global ones, have come out saying it is a miss. Do you think there is too much scrutiny in one quarter here or there?
The slippages were a little disconcerting. Slippages came more than we expected, but overall the performance was very good. Provisioning is also slightly down with the help of which they managed to grow the profit. So, there could be a little bit of a question mark going there in the eyes of these foreign brokers. But to my mind, at one time book, such a large franchise with very strong subsidiaries doing so well, all compounding at 15% to 20%, deserves to get re-rated and very sharply.
Is it a good idea to simply buy Info Edge? You get interplay into Zomato, into Policybazaar and into a tech recovery?
Absolutely. I second that, thoroughly appreciate that idea.
Better than buying Zomato and Policybazaar buy Info Edge?
Yes, but I am very gung ho on Zomato because I believe that everything is ticking along quite nicely, costs are in control, we are expecting 50% top line growth over the next two to three years, bottom line coming out of it will have a lot of tax shelters. So, there is a case to be made for a very strong up move. Rs 140, 145 is my target on that stock. So, I am thinking of 50% upside, I do not think you will get a 50% upside in Info Edge.
We were discussing how Raymonds has been a multi-bagger in the last five years, how Escorts has been a breathtaking mover in the last 10 years. Which is the next big one now?
It is Escorts and it has got a lot of steam left. I think it is going to move up very sharply.
It cannot give you the same percentage return. So, in that same percentage returns, like high return, probability basket or a possibility basket five years out this could be a trend in making and this could be a stock if they deliver and if the tailwind continues, the business could hit out of the park or the stock could hit out of the park, what falls in that criteria for you?
Welspun India is one stock which is out of the radar for everybody and that stock has the potential to do exceedingly well over the next five years. My reasoning being that the home textile business has got back its margins again.
Their B2C businesses are clocking along quite nicely, towels, bed linen, as well as their wooden flooring business is coming along very well. Their capex cycle is over. We are going to expect margins going to between 10% to 15% EBITDA from zero as of now and the way their B2C platform is building up in the consumer discretionary space, there could be a very sharp re-rating on the stock, not to forget that they would also be debt-free by then.
From the QSR space, do you like any of the names – Jubilant Food or even Devyani and Sapphire?
Devyani by a wide margin given the corporate governance, the way Varun Beverages has run we believe that the same thing can rub off on Devyani and to my mind this stock has got a 30-40% upside for fair value.
Which is the best play on QSR – is it Westlife, Burger, Sapphire, Devyani, Zomato?
I will go with Devyani because they have got a diversified franchise base, they have got different brands. It is run very well. It is an efficient machine and they have got a very-very good run rate of putting out new stores. So I’ll go with Devyani.
This is like the biggest irony. SIPs are strong, brokerages are strong, DMAT is strong, but…
Sebi is also strong. So Sebi has come in and spoiled the party for all these franchises. They have tightened the noose, you know, taken de-risking measures, which are very, very tight in enhanced working capital, and cut back on trails. They are hurting because of that but I think I would give it six, eight months before the poison in the stock settles and then they would resume their upward journey.
On the Cipla Blackstone deal, which is brewing, do you think there is some reality to that?
I would not want to wager on speculation.