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Why Deven Choksey is gung-ho on cement and steel

A better demand scenario and a better price outlook make cement a commodity play.

ET Now|
Nov 19, 2019, 11.00 AM IST
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ETMarkets.com
Deven Choksey-1200
I would bet that metal -- ferrous as well as non-ferrous -- would see a better price regime hereafter, but cement as a commodity would be doing even better than metal, says Deven R Choksey, MD, KR Choksey Investment Managers. Excerpts from an interview with ETNOW.

How closely are you tracking the telecom story? Are they investment worthy just yet?
Definitely. The hike in could mean a little bit of a breather, coupled with the government considering some kind of moratorium for payment of AGR dues. Some kind of a lifeline would be available to the incumbent telecom companies. This is where you might see some amount of market interest getting revived in these companies.

However, the fundamental point of view remains whether these companies would be in a position to attract new money into the books and probably expand infrastructure which is required. At the same time, they would be in a position to offload some of the infrastructure assets that they have been carrying in their books into separate companies or InvITs and probably release that bandwidth of money for reaching the last mile as far as the connectivity to the consumer is concerned. All these issues would remain interesting to watch out for. In my view point, it is not a simple proposition though I do agree that concessions on AGR dues as well as this hike would mean some amount of breathing space for these stocks and probably the market would also see a little upside in these stocks.

What is your take on Tata Steel?
I can see the company has a complete control over the cost management part of the business. Wherever assets are not producing enough bottom line performance, they are unlocking those assets and getting out of the business. That is a corrective strategy which is leading to a better cost structure. Should we see a larger trade treaty between India and the US, we would have a greater stability in various commodity prices globally. I would bet that metal -- ferrous as well as non-ferrous -- would see a better price regime hereafter.

In such situations, most of the Indian companies should also benefit because India is in the capex mode and various infrastructure projects are underway. The demand scenario is not doubted in the country. So there is demand and price stability. When commodity companies have lower input cost in form of crude oil on power related cost, it is a win-win combination for this cyclical industry. Maybe you should see relative stability into the commodity and stock prices here after.
Tata Steel has a complete control over the cost management part of the business. Wherever assets are not producing enough bottom line performance, they are unlocking those assets and getting out of the business.

-Deve Choksey



We have been seeing an up move on some of the cement stocks. Buy calls are coming from those who believe the cyclical upturn will unlock a lot of opportunity in some of the cement names. Are you looking at cement stocks?
We probably have a conviction that cement as a commodity would be far better than metal commodity proposition. It would have a relatively higher amount of demand scenario. The thrust is on infrastructure and at the same time, efforts are being made to revive the construction industry. From that perspective, cement would see better times going forward.

Fortunately, the price regime is quite stable as far as the cement outlook goes and that is once again positive. The input costs are also remaining positive. We like some of the regional plays. The companies which have larger capacity operating from a good region like Ramco Cement, is where we preferred these kind of companies.

Even the UltraTech kind of a pan India companies also remain quite a strong play going forward as also Shree Cement. Selectively we like companies with a larger capacity where they get the advantage of this kind of a better demand scenario and better price outlook. So, cement is certainly a commodity play.

RBL Bank is a stock where the street is divided. Is the worst behind it or are a lot of skeletons still left in the cupboard?
I would like to believe that the worst is behind but honestly would not be fully comfortable till the time I see some validation of these assumptions. The bank probably has the ability to come out of this particular situation but this particular situation should be seen for at least one more quarter after which if they give no negative surprises. After that, probably I would like to confirm that the worst is behind them.

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