The telecom sector is in trouble but the Bharti stock is up 52% in the last one year. What is your view?
Telecom stocks particularly Bharti has really shot up. There are two or three factors behind this entire rerating and up move. One is that definitely there is a possibility of the government giving some kind of a moratorium to the telecom companies on the payment of the Rs 28,000 odd crore AGR dues that they have to pay to DoT.
Secondly, sanity returns as we are hearing the news that both Vodafone and Bharti would consider a price hike. We do not yet know the quantum but when you see a price hike after a gap of so many years, there is going to be definitely a positive sentiment around it.
Most importantly, for a company like Bharti, there is an under-ownership both at the retail and institutional level because of the issues that they were grappling with. There could be a sense of urgency as far as some of the institutional investors are concerned to own stocks like Bharti.
So, a combination of these factors are playing out. We too have revised our price target upwards to about Rs 440 and we think that the next couple of years are going to be extremely positive for Bharti.
What is happening in Glenmark?
We have seen that people have turned positive selectively in the pharma stocks, either because of some revival in the US business or the fact that even the domestic market for some of these companies is huge and after the price controls, we have seen some kind of a stabilisation. We have seen some pharma companies including Sun Pharma, Divi’s Lab and Aurobindo Pharma all going up.
When you see a price hike in telecom sector after a gap of so many years, there is going to be definitely a positive sentiment around it.
As far as Glenmark Pharma is concerned, the stock has gone up in the last couple of days but our view has been that because of the kind of debt that they are sitting on and the fact that whatever guidance the company had earlier given in terms of growth, the actual performances have been far lower. Recently we have booked out of Glenmark Pharma so we would be more comfortable buying into a Divi’s Lab or a Cipla or a Biocon.
What are you reading into the aviation data? Finally, a positive tick has come in for October as domestic passenger traffic has grown by roughly about 4%. Would you still avoid aviation or could one buy into these stocks?
When we look at the aviation sector what has really surprised me is that despite the fact that there are only two or three meaningful players, the growth has come off. Overall, because of Jet moving out of the system and the fact that the market share has gone to Indigo and maybe SpiceJet and Go. We are not able to see any meaningful performances either from Indigo or SpiceJet, even when crude prices are at a more reasonable level.
Also, post Jet, the prices had really shot up. Insane pricing was prevailing both for the domestic as well as international market. Even when the best of the situation is there in the pricing and crude oil prices, if these companies are not able to report any worthwhile performances, then you know what is the point of trying to give them any sort of a valuation or why would one really want to go for those companies? My sense is because of certain season coming in, you might see good data points etc. but operationally none of these companies have been able to demonstrate the ability to grow EBITDA on a sustainable basis. That keeps us away from the airline space for a while.
All insurance stocks are going higher but nobody is able to tell me why at a time when the private insurance or growth numbers have declined from 20 % to 7-8%, these stocks are rising and how! SBI Life is 76% higher in last one year, ICICI Lombard 50% higher in last one year and ICICI Life , 40% higher in the last eight months?
There is a preference for the non-banking finance companies (NBFCs) where one can really look at a structural growth story. In terms of the growth rates having come down, I agree with you but given the fact that we have gone through so much of pain for some of the banks and particularly PSU banks and NBFCs, the investors have preferred companies where there is a non-funding exposure.
Of course, when you look at the insurance sector per se — be it life or general insurance space — there is definitely a case for a significant growth from here on and typically the business model of insurance is such that initially for about five years, companies do not make profit, but after that, there is a significant ROE that one can really expect.
Most of the companies have gone through that curve plus a lot of M&A 2 has happened. This sector overall looks quite promising. We as a house have a preference for an HDFC Life and Bajaj Finserv, because these are the two companies where we are seeing much higher visibility and much better pedigree of promoters etc. We would continue to be positive on those names.