Two stocks you track closely, both InterGlobe as well as Indian Hotels giving fresh solid moves today. Do you think the prospects continue to look brighter and what if one were to look to add positions at these levels? Would you recommend that at all?
Sandip Sabharwal: InterGlobe is in a very unique position where the competitive intensity instead of increasing on improved profitability in the sector actually reduced.
SpiceJet has its own issues which has led to reduced services and airlines like InterGlobe which is only listed player available and on the cusp of the peak holiday season.
So, I think Vistara, Air India, etc, they will be able to have significant pricing power. And additionally, the input cost pressures have eased off so significantly. So, I think that is also boosting the stocks in the short run. So, there is nothing wrong with InterGlobe. Absolutely, I think strategically also it is very well placed. Long term, it should do well. Indian Hotels has been doing well.
The management strategy of expanding across various formats, expanding its food delivery, TajSATS. So, I think strategically they are doing very well and now the big focus only on managed hotels is working well for them. Stock is not cheap at these valuations at all. Like, we obviously hold for from very low levels and we continue to hold.
So, return potential on absolute basis will be low because it has run up so much, but directionally next two-three years should still be good for them.
What is the right way to approach some of these defence and railway names? And I ask because some of these select PSUs have actually fallen a good 30 to 20 odd percent apiece from their previous highs or all-time highs. And the last month especially has been particularly excruciating for some of these names.
Sandip Sabharwal: Defence stocks eventually will come into buy range because of the huge visibility of growth and order flows still coming in. The cabinet is still approving new projects, new investment cycle. It is railways that we need to be a bit concerned on because there has been a very sharp run-up and incrementally new project awards or new investment announcements, etc, are not there. So, the growth issue could come up in railway stocks and the valuations are still very high. But I would be concerned about railway stocks still despite the near-term correction.
And defence valuations are high but long-term directional play is still good. So, we need to wait for the right opportunities to increase allocations for those who do not have buy into them at some stage.
Curious to know how you have read into Zomato actually acquiring Paytm’s entertainment ticketing business. How do you think this deal is going to pan out? Seems like at least when trade started off that it is more beneficial for Paytm because that was the stock also which was holding up. But what is the take now on both Paytm as well as Zomato?
Sandip Sabharwal: So, how the valuation happens in these kind of deals is very tough to predict. So, it is not a small amount. It is a very significant amount and what Zomato gains out of it and how they can leverage that to improve earnings is something we have to see because on their core business they have just started becoming profitable last two quarters and now they are going for this large acquisition.
So, I think that is an issue with some of these new-age companies. As far as Paytm goes, I think it shows a sort of desperation on their part to get in cash flows. So, the internal picture could be even worse than what we can see from the outside. So, I would be cautious on Paytm.
What would you do with that basket? Is this dip a buying opportunity or just stay away and perhaps the best is done for autos?
Sandip Sabharwal: I do not think best is done. I think it is a phase of consolidation. They have done so well, most of these stocks, if you see. Like Tata Motors, obviously we have exited a month back, but it also moved from 400 to 1,100 plus. Stocks like M&M have moved from 800 to nearly 3,000, etc. So, after such sharp up move, there has to be a phase of consolidation and that is getting also exaggerated by the near-term slowdown in the overall market.
However, controlled input costs, low fuel, like there is unlikely that fuel prices will go up and the festival season should be decent for auto companies. So, once this consolidation phase gets over, I would think that this is a sector which definitely could have potential.