AMCs and insurance could generate future compounders: Nischal Maheshwari, Centrum Broking
It is difficult to put out any stock which I believe to be a multibagger in my hands.
A month ago nobody wanted to buy YES Bank, it had gone to sub 40, Rana Kapoor sold out, institutional investors sold out, now everybody wants to buy into YES Bank -- be it the Munjals or the Mittals, the Adani family or some of the big funds. So what has changed for YES Bank? Why at Rs 36, there were no buyers and at Rs 70, there are a clutch of family offices, global and local investors who suddenly want to own a piece of YES Bank?
Though we do not cover YES Bank, but I think Rs 36 was the market price basically because Rana Kapoor’s stake got sold in the market and it was a forced sale. So, that was not a true price of the stock. The last fund raise happened at around Rs 80 and I believe at prices lower than that, you would have found buyers earlier also, except when it was at Rs 35-36 due to a forced sale.
Going ahead, as these family offices get a chance to buy stake in a large bank, they are all looking to have a fresh look on it. As far as bank’s last quarter results are also concerned, there are challenges as yet and it requires a serious amount of capital. In the long term, some of these guys definitely look at it as a good opportunity and that is why they want to be in.
Whatever could go wrong frankly has gone wrong. At Rs 70 or sub 70 level, some would argue that fears of a run in bank and merger with one of the other banks, is ruled out, if they raise capital. Is YES Bank one of the stocks to buy right now? A year or two years from now, could it go up to Rs 150 or even Rs 200?
There is a fair possibility, but as an institution I would recommend that once the capital is raised and you have a fairly good visibility of that $1-1.2-1.3 billion is coming through, that is the time you should press the button, not now. There is too much uncertainty over who will come, what will happen and whether RBI will agree to a substantial investor to be there or not. If I look at the last result, there are still a lot of challenges.
Very often we talk about classic compounders. But there is a market where you can buy businesses which are called as early birds and which have a potential to become large, big or scalable. Give me a list of two or three companies where as a house you feel that if you buy them now, these businesses can be scaled up significantly in three, four, five years?
It is a tough one, given what is really changing in the Indian environment. I do not believe there will be a lot of them out there, given that the scales of the business that are changing. What I definitely feel very strongly about at the moment is the asset management companies which I believe have a long way to go.
I believe they are at the same cusp where banks were may be 10, 12, 15 years back and the asset management companies should be having a very strong run. I think both the asset management companies which are listed, already have multibillion dollar market caps. But can it be multiples of them from here onwards? I definitely believe that this is one industry to consider very strongly. The other one is insurance. These are the two industries which we believe basically has got a long way to go. At the moment it is difficult for me to actually put out any stock which I believe is a multibagger in my hands.
A few stocks that will be in focus today on the back of earnings -- ABB, Pidilite, Bata. What are you expecting this time for those quarterly numbers?
Bata numbers should be muted given that as far as the consumption pattern is concerned, it is going to be tough for Bata. A 7-8% growth basically is what we are expecting. Pidilite we do not cover it as yet basically but there also, we see a muted number only.
What about Coal India?
Coal India is a good dividend yield stock but last quarter’s numbers would have been bad for Coal India because of the rain and the flooding of several states where production takes place. So it would be a challenge for Coal India in the current quarter.
If I map the numbers for the private sector insurance companies, we see growth has plummeted from late teens to single digit. The October, September and the July data all indicate a marked slowdown at the level of private insurers -- be it HDFC Life or ICICI or smaller franchise like an Edelweiss or Max?
In the last two or three months, we have seen some amount of slowdown but what I am referring to is there is a very long runway for them, given that the insurance penetration is only 10-11% in the country. That is what I am trying to refer to. In the developed world, it is anywhere between 45-50%. People are slowly becoming aware and as the income levels go up, this is one product which will keep on getting up.
The second one is the general insurance. As the premium goes up, people buy more houses, they want to buy more cars and everybody wants to insure them. This is a very nascent product at the moment in the country that has got a runway of at least 15-20 years to keep on compounding at 10-15%. These are not something basically which will grow at 30%, but it is a very good compounders or 10-15% kind of a thing basically for the next 10-12 years.