“I am not so gung-ho on the cement sector overall because volume growth will be there but supply increases are very strong for the next two-three years so I do not think these companies will have much pricing power. But given that Ambuja fell from Rs 600 odd at the peak to Rs 320-330, we also picked up something around those levels but I am not looking at very huge targets. It will be a swing kind of investment,” says Sandip Sabharwal, asksandipsabharwal.com
We have had three weeks of hectic news flow – Budget, Adani Group stocks, earnings. In the next two weeks, we do not have too many planned calendar events. Do you think it will be back to basics now, valuation, earnings, technicals, flows?
Yes, it is and these days, the most important data globally has become the US CPI data and which typically sets the trend. Normally, markets get nervous running into that event and if they see that CPI is coming under control, then markets tend to do well. I think that kind of phenomenon will return now. Because the result season is more or less over and most companies have said what they want to say. So markets do not have many triggers. I think it will be specific stocks, specific sectors, etc. and those sorts of things will continue.
Let us focus on earnings. Clearly with its decadal margin levels and that is pretty much the trend across the capital good space as well. Do you think there is still an opportunity to buy into some of these capital good names?
Yes, capital goods companies have been doing well. They have been getting good orders and execution also has been strong and margins have now started to move up as the material cost issues have started to reduce. The only issue for people who could not buy early into many of these stocks is that they are not getting any opportunity for new investors to get in terms of a correction. ABB results are exceptional but then some part of that has already got factored into the price, so people will need to wait for opportunities to get in that because looking into what growth they have shown and the carry forward order book so this year growth might be slightly moderate, but then still it will be reasonably strong.
and numbers stood out last quarter. BHEL was the poster boy in the PSU capital goods space in the second half of last year. However, BHEL numbers were not as strong as that of ABB or this quarter. Coming to Balrampur Chini, sugar was supposed to be in a bull run but numbers do not match up with the underlying sugar prices. What went wrong and what went right for Balrampur Chini for the quarter gone by?
The sugar cycle went through a downturn in terms of how the companies did and now the upturn will start. Last quarter, many of these companies faced issues related to late rains and lower production in the initial months.
MORE STORIES FOR YOU✕
« Back to recommendation stories
UP sugar companies in my view should do well given that there is expectation of lower production from Karnataka as well as Maharashtra given weather issues. While UP sugar cane production seems to be strong, the ethanol story is obviously there. Most of the events are backward looking. The only spanner in the work could be price increases by the state government which can impact profitability. Ex of that, things are okay for the sugar sector in terms of an outlook.If we look at Friday’s block deal in Paytm, Alibaba has sold its entire 3.5% stake in worth Rs 1,300 crore. Paytm has two large investors; Alibaba and SoftBank. SoftBank has been reducing their stake but Alibaba is now completely out. Paytm’s path to profitability is well defined and the overhang of anchor investors now seems to be reducing. Do you think Paytm’s problems are getting addressed one by one?
Whoever is buying Paytm needs to take a call on why they are buying the stock. Now there is the core payments business which is slowing down significantly. The revenue growth out there was very muted. The second part is the loans they initiate. They are earning some 2.5-3% commission on that. The entire thing they are counting as revenue and most of it flows to the P&L. And then you have to ask the question: how sustainable is that business and what kind of PE can you give a pure fee income of loan initiation? So I do not know the reason for such aggressive bullishness. They might show profits but what is the sustainability of this business?
One Adani Group stock deserves some discussion, Ambuja. Now Ambuja is not an original Adani Group of stock. It is a company which Adani Group acquired last year. It is a company which has a predictable track record.Why do you think Ambuja and are underperforming? Are these stocks a good contra buy?
It is more of a technical overhang because there is fear in the minds of the market participants what if some pledged shares come into sale and there is post selling etc. I think that always comes up and the entire group comes under question.
On the other hand, as far as pure fundamentals go, they are reasonably well placed. I am not so gung-ho on the cement sector overall because volume growth will be there but supply increases are very strong for the next two-three years so I do not think these companies will have much pricing power. But given that Ambuja fell from Rs 600 odd at the peak to Rs 320-330, we also picked up something around those levels but I am not looking at very huge targets. It will be a swing kind of investment.