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Reliance stock could double over the next four years: Chakri Lokapriya

CSB Bank valuation can sustain at 2.6-2.7 times; Ujjivan to jump on listing day

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Dec 05, 2019, 11.55 AM IST
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Ujjivan has been oversubscribed phenomenally over 100 odd times but it is trading at the valuation band of the IPO. It is still trading at a huge discount to Bandhan Bank or Credit Gramin. It is a good 30-40% discount, says Chakri Lokapriya, CIO & MD, TCG AMC.

The recent spate of issues have seen fairly enthusiastic appetite, even if they have been smaller sized issues in the financial space. Nonetheless, markets seem to have snapped them up. Have you been following that as well?
Yes, indeed and CSB has had a very good listing. Even after the listing, the 50% pop in prices probably would be trading at about 2.6 times book. This is a bank which is on a turnaround and where its GNPAs are coming down, net NPAs are coming down, it’s mix is improving towards retail and so the case is building up. The valuation can sustain even at the 2.6-2.7 times. From that perspective, as long as it continues to turnaround, the valuation will hold up.

Second, Ujjivan has been oversubscribed phenomenally over 100 odd times but it is trading at the valuation band of the IPO. It is still trading at a huge discount to Bandhan Bank or Credit Gramin. It is a good 30-40% discount. It is trading at two times book and whereas these companies are trading at about four times plus book. So against that backdrop, on listing, if the overall market holds up, you will see an extremely strong uptick in Ujjivan on the listing day and find support thereafter.

One stock which is showing relative strength and is sitting at a multi-week high is Bajaj Auto. Autos are in almost a doomsday situation but most of the auto stocks are back from the recent lows and Bajaj Auto is outperforming. Chakri Lokapriya: Bajaj Auto valuations still look fine. It has outperformed M&M as well as the others. Hero MotoCorp is still negative. Against this backdrop, they have made the right moves in terms of the future which is launching of the EV scooters. The existing bunch of vehicles have found the right price points. So, you are seeing a demand pickup at the low end of the bikes which was down in the previous quarter. Against this backdrop, momentum will continue with the BS-VI coming up in a couple of months.

Would Bharti Airtel prospects be a little more hopeful after the fund raising?
After this fund raise, Bharti’s leverage will come down quite decently -- from about 4 times to about 3 times. Plus, the tariff increases are going on. We will expect to see some more tariff increases. A combination of both these things will improve the balance sheet fairly strongly. Yes it will still be a high debt company at over three times debt, but it is improving. Against this backdrop, the fundamentals are improving. With a combination of tariff hikes and capital raise, I would be a buyer at the current levels in Bharti.

How should one look at aviation, especially in the light of the news on IndiGo?
Aviation is still a trading sector. SpiceJet is adding capacity at a far higher rate, expanding far faster and expanding into business class which IndiGo has not and that will probably protect IndiGo’s margins to some extent. But SpiceJet needs to grab market share and this is the time for them to do that.

So, aviation is good for trading, Stay away if you are a long-term investor.

If oil is refusing to go above $70 and if that is one third of the total cost for any airline, why should one be bearish on airlines?
That would be because airlines have always been subject to the vagaries of oil price movements. On the other hand, there is the aviation industry’s inability to raise tariffs and the air ticket prices beyond a certain level. And then the regulator ensures that the price points do not move beyond a point. Against this backdrop, the airlines have historically not been good in their ATF purchases.

A combination of all these three factors make airlines stocks, not just in India, but globally good positional trades and not long-term investments.

What is the impact of UTI listing on SBI or BOB? Both are looking to monetise whatever they can. SBI is planning to take the credit card business public. They have taken their life insurance business public. They have plans to also take the general insurance business public also. It looks like banks are doing whatever it takes, to raise capital or monetise the market.
Yes, in fact, all the banks require capital. SBI does not need capital but all PSU banks do need capital. They need over Rs 50,000 crore in the coming year. Against that backdrop, SBI is a very strong bank within the terms of capital.

Among all the AMCs, the valuations of HDFC as well as Reliance Nippon are fairly high. So, offloading its mutual fund business stake would help it gain good valuations. On the other hand, credit card is a brand new growth sector in India. Post demonetisation, millennials are using more credit cards versus cash, etc. So that is a growth path and therefore that will also command good valuations.

Against this backdrop, insurance is a growing space. All these three areas will be good for the valuation of SBI in particular and the space in general will see good response from the IPO market.

Eicher has been one of the outperformers of the decade. So have been City Union Bank and HDFC Bank. Which one would you bet on, not for the next 10 years, but the next three years? Where you would say I will buy that stock and not sell it for three to four years?
We might as well stick with one of the largest companies in India -- Reliance Industries. It has all the things going for it. Jio will be more profitable, earlier than expected because of all the tariff rise. Its retail business is doing great and its traditional refining and E&P business is chugging along. Against that backdrop, the stock can return safely about 20-25% CAGR over the next three years. So it will double over the next four years.

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