Sameer Narayan on what to do with Voda-Idea, YES Bank & PSU stocks
The fear of a lot of subscribers going out of the network is slightly premature.
What do you want to start with -- YES Bank or telecom?
Both are to an extent interconnected because one is talking about a specific bank and the other is talking about banking as a system because if you look at what is happening in the telecom sector, you know that post the Supreme Court ruling on AGR dues, the financial condition of the telecom incumbents has the possibility of becoming a systemic risk.
Then the government got in and said okay we are looking at giving a moratorium and at the end of the day, finally, the players themselves have decided that somewhere the game has to move from market share accretion to profitability in terms of operations and that freebies can’t be doled out in perpetuity. That is the reason we are seeing pricing table shifts.
Given the fact that India has got a fairly high mobile penetration of roughly 80-85%, there might be some shakeout but not very large because by and large the market shares have now got aligned and the fact that today data has become such an important fix that everybody first renews their data plan before going and buying the monthly groceries. Data is now an essential purchase rather than a discretionary spend. Therefore 10 GB per month data consumption can plateau out a bit, but the fear of a lot of subscribers going out of the network may be slightly premature.
Also, the tariff hikes are not likely to be too large in terms of hitting the purses and even at that modest increase, people are likely to stay put because now it has become a way of life. In telecom, there is a clear signal that the regulator, government and the players are taking the right steps to ensure long-term viability of the sector, which is in turn is good for the banking system and is good for both the players as well as the consumers in the long run.
Coming to YES Bank, the new management has taken charge ad post that, they have already taken steps for guiding the market. The watch list has expanded as they have made space for contingencies. Out of that, one can say that this has got realised now to that extent that one has to wait and watch as to what treatment is being given to balance the number in that bucket. People will give it time because it is not as if it is something new, but it clearly shows that a lot of things have to be taken care of before one turns the bend.
Would you be a buyer in YES Bank if the stock falls today?
For a long-term investor, anything around Rs 60-65 levels is not a bad price because the visibility as to when does the investor come and at what price he comes in is, something not a question of if, it is a question of when. Once that happens, a bank this size will definitely turn and given the fact that the kind of people who come and do the second round of fund raising and that the management is committed, over the long run, clearly there is value in the stock at these prices.
Would you be a buyer in any of the telecom stocks? If so, Bharti or Reliance?
I see good tidings for the sector as price wars seem to have ended.
But would you be a buyer?
If I am looking for a multibagger opportunity, Vodafone Idea probably looks better because there in case the rate of change happens, you could probably have a lot of value accretion. At Rs 16,000 crore of market cap, the problem is the net debt of about Rs 1 lakh crore and in case you talk of increasing the tariffs, the EBITDA will probably grow by almost 70%. The rate of change is not perhaps getting priced and the stock has only doubled. If the EBITDA grows 2X, the stock should technically go 4-5X.
Where is something like a Chola or a Sundaram headed?
The NBFC crisis took centre-stage about the same time last year. Now what has happened is that because the other guys have actually vacated the space, it is the large companies that have gained market share by virtue of this balance sheet strength. Their cost of funds has improved. So, today they are in a sweet spot whereby they have gained market share and as cost of fund has improved, spreads look better and their earnings delivery is far better than what the market had expected.
Now if you roll forward another quarter, the base effect will likely catch up. As a sector, some amount of growth should be visible when you look at the December or March quarter earnings purely because of the base effect. The government has also started putting in a lot of money in the system. So, hopefully the velocity will pick up over the next couple of quarters and after the kharif harvest hits the market in Jan-Feb, some sort of consumer spending should get kick-started.
Actually it shows that you could be in a situation whereby from here, the return ratios could improve for the large guys. There is an article 227 about the regulator taking it to NCLT, there is also a function that Rs 500 crore in plus AUM can be referred. The resolution process is also now beginning to take shape. These are conference boosters, but having said that, the valuations do not give some sort of comfort for fresh entry. People who are holding will continue to hold because the earnings are good and the outlook is not all that bad.
But will I make a fresh purchase here? I do not know. Whatever incremental flows are coming in, people are wanting to remain invested in these pockets because right now, they give you a sustainable and predictable growth.
Suffice to say that the big pain for motown is behind us. That is what the stock prices also seem to be reflecting.
As of now, the stock prices have reacted and the numbers have still not shown and therefore it will be a difficult case to say whether it has actually played out because our leading two-wheeler manufacturer was very buoyant about the festival season but last week itself he came and said that November is not all that good.
Now, last year Diwali was in November whereas this year we had it in October. So adjusting for the base, the inventory definitely is coming down. But is it at a level where at the first sign of revival in demand, you will restock adequately so as to give you a fillip in the revenue line? One does not know because if you look at the 2008-09 example, there was a very clear and a very rapid U-turn . At that time, the inventories in the system had got completely cleaned and at the first sign of any change in demand, everybody just ran to restock inventory. This time, it is different for different players in the motown.
I do not think there should be any fundamental reason for PSU stocks to go up further from here just on account of the cabinet clearance.
In passenger cars perhaps, it is not all that great, whereas in two-wheelers, maybe it has got cleaned out quite a bit. The market has to make a decision as to where the level of demand will first start going in because we had the data of new registrations coming in for October. Passenger vehicles have already shown the base effect. They have already started showing 1% or 2% growth YoY, but the CVs and the two wheelers are still in fairly decent negative territory.
Britannia is saying they are expecting revival only in 9 to 12 months, contrary to what we are seeing on the index. What are you making of the latest comments?
Well markets always move ahead of the actual earnings. I think this is some sort of a confirmation that earnings should turn the bend from here. The challenge is that the September quarter earnings have two clear trends; first, if you knock off the tax impact of the lower corporate tax cut, not much of earnings have performed below expectations and on the revenue line, there is a far bigger disappointment than what was earlier envisaged, given the fact that the expectations were low anyway.
These are two very clear indicators that the worst perhaps should be behind us. But there is a hope that from here, in case the liquidity in the system starts to show its impact, you should see revival down the line. Whether it is one quarter, two quarters or three quarters, the verdict is still out. Today a very clear signal of consumption demand coming back is not visible. There is no credit offtake. Those are the factors which are still to be grappled with in terms of where the market is headed relative to valuations.
The cabinet is probably meeting today to decide on disinvestment. But these stocks have already run up in anticipation of something coming in -- be it a Concor, BEL or BPCLIs there an opportunity to buy into these names?
There is still a bit of time left for the divestment process to get cleared by the cabinet followed by firms getting divested and the money coming in to impact fiscal revenues, etc. I do not think there should be any fundamental reason for these stocks to go up further from here just on account of the cabinet clearance. Since the time these names were put in the public domain, the stocks have already reacted. So from here onwards, it is just a confirmation that yes the intent is clear.
The larger thing is that when FM has said they do not intend shifting the fiscal target for this financial year which means that hopefully they have plans to ensure that some amount of stake sale or ensure monetisation. One would need to see as to how the execution of that intent takes place rather than just the fact that the Cabinet has cleared the proposals.