Gurmeet Chadha, CIO & Managing Partner, Complete Circle Consultants, says despite the fall, Polycab still trades about 30-35 times forward. But Chadha thinks it is a bit of an overreaction. Also, earlier when UltraTech came, the stock corrected and we saw a bit of a recovery. With Adanis entering the fray, there has been another correction. The cable and wire business is very different from the cement industry which saw a similar disruption? Over a perio ..
What is your view on a beaten down sector like the wires and cables segment? What should an investor do if they are invested in this space right now and if they have some of these names like KEI or Havells or Polycab in their portfolio? Is this a move coming in on the back of news flow? It is just the one-time shock that is coming in and in the near future there is room for everybody to win in this space or do you believe that these new entrants could be creating more havoc than the Stre ..
So, despite the fall, Polycab still trades about 30-35 times forward. But my sense is it is a bit of an overreaction. Also, earlier when UltraTech came, the stock corrected and we saw a bit of a recovery. Today, again, we have another announcement. And the cable and wire business is very different from using your existing cement distribution network. It is completely different for electricals. Over a period of time, the industry itself is likely to grow with surging power demand, and revival in ..
Cable and wires have multiple plays and by the time these guys would be operational, the market would have grown by another Rs 15,000-20,000 crore from currently about Rs 1 lakh crore. So, I do not see much concern in the long run, but in the medium term, it is more sentiment and seeing what happened to Asian Paints, the markets are reacting.
Why are all these conglomerates rushing to the wires and cable space? One would have thought that a large part of the unorganised to organised play is already behind us with many listed players already out there with very dominant market shares led by Polycab. Other than that, this is a relatively low margin business. What sense does it make for UltraTech and Adani both to get into the sector?
Gurmeet Chadha: It is a bit of a backward integration for both. UltraTech obviously has backend integration with metals. They want to use synergy in terms of the reach they have. Adani also, if they have done a JV, where this particular JV will do a whole host of other things than just cable and wires alone. What I have seen over a period of time with conglomerates diversifying too much, it does not necessarily lead to wealth creation, and sticking to core is what helps is what ..
But it is a decent margin business. You look at margins with ROCE, you get like 12-13% margin business with a very good double-digit ROE. So, from an asset turnover basis, from a capital allocation basis, if you are able to grab some shares, it may not be a bad call. But it is very different. It is not just a simple cable and wire which has a lot of brand appeal. Polycab in particular has a very good B2C network other than B2B. That is where KEI is probably reacting more because it relies more o ..
Polycab also has now been able to build a very good brand from a B2C segment. Then, they have FMEG also which they are trying to scale up. But markets being markets, in bull markets, we ignore bad news, in bear markets we ignore all the good news. Polycab got a Rs 3,000-crore order recently from BSNL for Bihar circle. The size of the market, the industry itself is likely to grow in early double digits and that is probably what people want to capitalise on.
Post the recent correction, would you be looking at any of the defence or the shipbuilding names?
Gurmeet Chadha: Yes, valuations did see a correction, although some pockets are still stressed. What we are seeing is a global order getting reset. Look at what the German Parliament did. It has been a record budget approved both in infra and defence spending. And with the new world order probably you will see one area where everybody would shore up investments ..
So, next quarter’s numbers are important and we are also looking at Bharat Electronics in our portfolio. You have to be selective here because the order books are long and there is also some risk in terms of either order getting delayed or not getting or even getting cancelled, so you have to keep that in mind and do not pay only on the basis the order book which the industry was paying till last year.
Where else are you seeing a buying opportunity?
Gurmeet Chadha: Financials continue to look good. We have seen a clear change of RBI stance not from an official stance, but both in terms of liquidity, both in terms of interest rates, and we saw a lot of tightening both by RBI and SEBI. RBI in terms of loans, in terms of LCR guidelines. So, the stance has changed now. They have infused liquidity which to me has been record liquidity infusion after a while. In ..
We like some good quality NBFCs also, especially in the housing finance and gold finance space. We like consumer discretionary spending because the consumption basket itself is undergoing a change. So, whether those are airline stocks (we have InterGlobe in our portfolio), hotel stocks including Indian Hotels and Lemon Tree. We were holding ITC, and got ITC Hotels. At Rs 30,000-crore odd market cap it looks reasonably valued.
Then we are looking selectively at auto because the leadership is now getting established. In two wheelers, TVS is clearly leading now both in the exports, even in electric iQube doing well as well as the two wheelers both motorcycles and bikes. M&M is clearly dominating on SUVs. Their market share is back at 23%. This was a bit of an overreaction on Tesla's entry to India because the price points on which both operate are very different. Tractor, they are gaining market share and farm equip ..
Even in auto ancillaries, we are seeing companies that are dependent on Europe coming under pressure and ones which are more domestic, doing well, which are the likes of Uno Minda, etc. So, probably the leadership is getting differentiated. So, selectively in auto as that technically is a part of the consumption portfolio and the last one is energy. I read a beautiful article by Mr Nandan Nilekani where he said, energy is the next UPI. That is one space I would closely watch because the country ..
Source Name : Economic Times