Where is it that you feel that the pain is overdone and the EPS downgrades are well adjusted for and one can start buying the decline if already, that is your thought?
Dipan Mehta: One cannot generalise like that a particular sector or so. But we are seeing that companies which have reported good numbers, they are interesting to look at and the correction has taken place over there or prices remain stable, which means the PE multiples over there certainly have compressed and that is I think where investors need to kind of focus on. But if you ask me across the board, if there is any sector where correction is over and done with and it has reached an attractive level, I do not think any such sector is there in our view at least.
So, let us start off with Reliance first because you tracked that one quite closely. It has been made famous, the kind of market cap loss that the stock has had in the last one month or so. Comfortable levels you think to start adding positions back?
Dipan Mehta: Not really because this September quarter numbers were a bit disappointing and actually the flag bearer of the company, which was the telecom division, that was the one which kind of drove the profits and saved the day for Reliance. The other divisions were really quite disappointing and the key question in Reliance still remains unlocking of the value. And if it is just going to be IPOs from the two divisions, that is retail and telecom, then the holding company discount will be quite severe and that is something which you want to avoid.
So, just waiting for a buying trigger, which has to come in the form of unlocking of value for the retail and the telecom division. Right now, investor buying Reliance is buying three businesses, not all of these businesses align with their investment strategy or their investment horizon or outlook for that matter. So, I think that that is the key question which remains in Reliance that how are the three businesses going to be listed separately and if it is going to be just a simple IPO with Reliance becoming a holding company, then you could even have another 5-10% correction in the stock price.
What about individual names like Asian Paints and Britannia? I mean, of course, different challenges, but do you think the stocks have fallen enough? Can one start nibbling in already?
Dipan Mehta: No, not really. I think that you should be looking at the exact opposite and try and sell at every rise whenever there is a pullback because there are structural changes which have taken place over there. In Asian Paints, the immense competition which has come in and base effect and other factors have led to slow down in the demand and that certainly is going to cause slower or stagnating earnings for several quarters or so.
I think the best days of Asian Paints are perhaps behind them, so it is best to exit out of the stock at the earliest possible opportunity. In the case of Britannia as well, it had a great 10 years right from 2010 to 2020 and the entire strategy of the management was to convert itself into a complete foods company with dairy products and a lot of other bakery products, not just biscuits.
But that strategy really has not played out well and still biscuits remains the primary product for the company and that particular segment is becoming quite mature and Britannia itself also has expanded its distribution network to the fullest possible, so those gains are also behind them and going forward, I do not expect the company to report super profits, at least not 15-16% type of profit growth, which is the bare minimum we require for our investment case. So, from that point of view, both stocks are a sell for us. Having said that, we and our clients have no investment in them, so our views could be a bit biased.
When the shakeout happens, markets frankly do not care, they do not differentiate between men and boys, the selling is universal. When a rise happens, the buying is universal. In the shakeout, are there any pockets where you said that, look, I always wanted to buy it and I am getting a chance to buy it and I am only buyer in terms of my comfort level, which are those companies or those businesses?
Dipan Mehta: We have always been attracted to innovative businesses, one of the kind type of businesses and I have a template, I have a list which is on my watch and I feel some companies are coming to reasonable levels, with disclosure that we and our clients have invested maybe investing. There are companies which street thought did not do well, but I think that they have great potential.
Platform companies like IndiaMart InterMesh, then there is Zaggle prepaid, RateGain Technologies, and then also there is Affle India. I think these four companies have very different business model and there could be others as well that we are tracking quite closely. These have got a great future with a 5-10-year type of a view.
Zomato at correction has got a great future as well. So, if you get these stocks at reasonable valuations and no doubt some of them are facing immediate challenges like RateGain has an issue with a customer. IndiaMart InterMesh has got slower subscriber growth, future collections have slowed down a little bit, they will work around these challenges. But at the end of the day, they are great businesses with superb scalability and one of the kind.
They have got very strong competitive moat. So, if you are patient and have a three-five-year type of a view, these stocks they have corrected adequately or they reach your price level where you get comfort, they are the ones that we are kind of focusing on because these stocks, you cannot buy them in a bull market.
Of course, the street is closely going to watch out for the Swiggy listing and there has not been too much of fervour when it comes to the kind of subscription numbers that we have seen, a lot of parallels being drawn with Zomato, although one would say it is not apples to apples. But how would you look at the listing of Swiggy, this behemoth within the e-commerce food delivery space making its debut today and what investors who did not get to participate in the IPO should do on listing day?
Dipan Mehta: So, I think that we already have Zomato and that is going to set the valuation for this particular space and I would just have comfort with Zomato because we have seen their listing history. The management strategy has been very well elucidated and we are seeing a clear-cut roadmap to profitability for both divisions. Swiggy is maybe a few quarters behind, again interesting business as well. Keep it on your radar.
At some point of time when the valuation gap between both these companies is really huge, that could be a good entry point. But look when you like a particular sector or an investment theme, it always makes great sense from a risk-return profile to just buy the market leader. I mean, look at paints, Asian Paints. I mean, I know it has fallen upon bad times, but when the paint industry was doing well the best returns came from Asian Paints and not the other companies. The same is with tyres. MRF delivered the best returns. In the case of cement, it was UltraTech and Shree which gave the best returns. So, if you like an industry, you like an investment theme, go with the market leader. I do not think that you can make a mistake that way.