Betting on HDFC, ICICI amongst the frontline banks and City Union and Federal amongst the mid tier ones, says Gurmeet Chadha, Co-founder & CEO, Complete Circle Consultants.
If you had to pick a banking stock to invest in right now, would it still be the frontliners, an ICICI, a Kotak or would you venture into some second rung names?
The HDFC Bank results and the commentary were very good. What impressed me most was the fact that they are leading in lending across segments. The SME stress is down from 9% to 3%. Collection efficiency is back to almost 95%. Asset quality has been very stable and the core income which is the net interest income was up about 17%.
Overall, a very good set of numbers. Also the digital initiatives the bank is taking is far ahead of some of the others, including some of the front line names. So, we are positive on them. ICICI looks good at maybe 1.5, 1.7 book value. Among the smaller ones, City Union also looks decent. But as I said, we will probably get a clearer picture on financials maybe one or two quarters down the line. Some corrections, some consolidation can happen as we go along. So HDFC, ICICI amongst the front line ones and maybe a City Union and Federal amongst the mid tiers ones.
A host of consumption names will deliver this week. What are your expectations in terms of stock price action?
If you do channel checks, you will realise that that pantry loading has clearly ebbed out now. The inventory levels are also normalising. You will have to watch out for players broadly in three segments which is a) home consumption. That will continue to remain strong. b)the immunity-based products and healthcare will also remain strong. c) hygiene and packaged foods. The personal care segment is still subdued and it will take a little longer and the volume growth would be very flattish.
I think Britannia looks pretty decent. They have done some very good launches in non-biscuits like wafers and salted snacks. Also they have done very well on the premium segment in cookies. Biscuits are plain biscuits, cream biscuits and premium cookies. Not only have they gone for new launches, they have also launched these in smaller sizes — what we call sachetisation of Good Day, Choco Chip and some of the others.
Tata Consumer has seen a decent correction from Rs 600 levels to sub-500 level. That is another long-term play. Their India business gradually will go up from 48% to 60-65% over the next two-three years. There is synergy now post the merger with Tata Chemicals, the new MD has a clear growth strategy in place. That is another name which looks interesting in this pack.
While it is great to buy FMCG stocks, don’t you think somewhere FMCG stocks are priced to perfection?
Tata Consumer is still getting it at 37 times FY22 earnings which is obviously not cheap. There are three growth levers in Tata Consumers. One is their tea business. In the last 12 years, it is a 10% top line product despite the market being very saturated. The base growth lever to me is Tata Sampann, their staples and pulses company. The overall market for pulses in India is about Rs 16-17 lakh crore, out of which the organised market is only 10% of which Tata Consumer is 15-20%.
The dal, urad, masoor, chana segment will see what we saw with tea and salt 10 years back. So the organised market share will grow. I assume Tata Consumer will be able to grow top line at 15-20%. On it being priced to perfection, some of the names yes if you buy 70-80 PE you will not get more than single digit returns with some dividend yields so that point is taken, that is why I said personal care, hair care those segments I do not think there is enough value but something which is home consumption, something which is more to do with market being grown with new launches will still have some juice left there.
Where will Bharti finally settle? Do you think the one-way street is a long one or now we are nearing the end of that downward trend?
The pessimism looks a little stretched to me. There were a lot of concerns. It started with MSCI weightage, then goes the AGR verdict and there is too much concern on Jio launching post paid plans at lower rates and launching smart phones to convert the feature phone users. Jio has not launched post paid plans cheaper for the first time. They have done it in the past as well. With the new TRAI chairman taking charge from 1st October, we will probably get some idea on the new spectrum auctions that would pave way for the tariff hikes.
So the tariff hike did not happen. People were probably assuming that from ARPUs would go up from Rs 150 to Rs 200. That did not happen. Secondly, if you break Bharti into India business, mobility business, the Africa business and the broadband business — the three major contributors are all stable. Even the broadband ARPU is about Rs 800. . So it will not be easy to dislodge somebody which has spent so much time in these segments. Even the African ARPU is slightly less than $ 3. So an ARPU hike will happen. It probably will happen more gradually than the Street thought and I think Bharti service really is far better than Jio’s. I remain positive at these price levels and I think the pessimism to me looks a little over done.
