How are you reading the commentary from the FMCG majors HUL and Britannia?
FMCG commentary has been on the expected lines. HUL was reasonably bullish. They have categorically mentioned that rural demand continues to drive consumption and that is on an upswing. They have expressed little concern about the urban demand and they have mentioned that probably a lot needs to happen as far as urban demand is concerned. That is pretty much how the picture is emerging and that is the ground reality today.
The festive season should bring a lot of cheer and urban demand has started picking up in the last few days. The two-wheeler and the four-wheeler sales numbers are pretty encouraging in the first few days of Navaratri. We hear that there is big demand for some of the consumer durable items and suppliers are running out of stock. Let us hope that Q3 brings an even bigger cheer for the overall consumption basket.
At this stage we are maintaining our bullish stance on HUL. We believe this GSK integration has just started and it has got a long leg to run. We are bullish on the foods business of HUL and the way it is going to shape up in the near future. It has already shown 83% growth and if you leave aside GSK, it was about 19% growth. The overall food performance is quite commendable. We believe that this will take HUL to a different level altogether and it is a new growth lever for them. We are positive on HUL.
We will be a little cautious about Britannia considering the valuation and the challenges they face in further growth at current level. We would not be a seller but we would not advise a fresh buy at these levels.
FMCG has always been a valuation story. Where do you find valuation comfort? Is HUL at the top of your list there?
Absolutely. If I look at the overall FMCG basket, HUL definitely is a very safe and sound bet. But if somebody is a little more aggressive, they should look at FMCG stocks like Emami or even a Marico. We like both these stocks apart from HUL. Yes, FMCG is a valuation story. There is Nestle, a fantastic company. Britannia is also a fantastic company but the valuation is a bit rich and to deliver the kind of growth which these PE multiples indicate will be a bit of a challenge going forward.
What is your view on the cement basket? Has the ACC result set the tone for the rest of the cement space?
I have been bullish on cement for the last couple of months. I strongly believe that post monsoon, there will be significant demand pick up both on the retail part of the market as well as the government-led infrastructure spend which is being talked about and that will pick up momentum. I have been talking about the supply-demand gap which will arise as far as northern and central India is concerned and that is going to play out in the near future.
I definitely would like the investors to look at JK Lakshmi Cement and Birla Corp. Both these companies have got facilities in northern and central India and at this stage based on valuation and peer comparison, they look pretty attractive. Amongst the large players like ACC, Ambuja, UltraTech or Shree Cement, the demand pick up is real and at some stage they will also gain a little bit of pricing power which is very encouraging. A combination of demand pickup and pricing opportunity is proving to be encouraging for the cement majors.
But having said that, valuation wise, we like ACC at current levels. It is looking comparatively better and the performance has been better than expected. Demand pick up is real and they have facilities all across. The master supply agreement with Ambuja is also going to show results in the near future. ACC at current level can be picked up by investors again.
In real estate, there has been some positivity especially in residential space on account of the pick-up kind of scenario we are in.
We have been maintaining that in real estate, in the last one, one-and-a-half months, there have been some positive signs and after a long time, we have been seeing these green shoots. I have been suggesting investors to look at DLF as an opportunistic buy. It has got all the components. There has been retail pick up. Apart from that, we have also seen the malls and shopping centres opening up and DLF has quite a lot of them.
Commercial real estate also has seen some good traction, particularly in cities like Bangalore, Delhi and to an extent in Mumbai. Things have not picked up in commercial real estate in certain pockets but generally things are better. Governments in different states have given concessions including Maharashtra and that is showing some positive results for the real estate majors.
Apart from DLF, the southern based real estate companies like Sobha can be looked at. We have always been bullish on Oberoi Realty and Godrej Properties. These two are for steady, stable, long-term term returns and investors can look at these as well.