Mehta does not see any threats to this bull market and says there may be corporate actions, a very vibrant IPO market, new listings, preferential issues etc. That is going to be the norm going forward.
How are you reading into the buyback news and how Piramal Enterprises has shaped up?
It is a company under transformation and they had a pretty difficult time when they were in the wholesale lending business to the developers and after acquisition of Dewan, their focus has shifted to retail loans in the housing sector. But there is intense competition over there and their endeavours to diversify loan books into other loan products still has to fructify. So, from that point of view, I am a bit cautious, although I must say the valuations are very attractive and management quality is decent. They will learn from all the mistakes made in the past and they have the capital, the resources, the talent to grow the non-housing finance book as well in a very granular, retail-oriented manner.
But, let us just see the actual results on the ground before we make a plunge. That is where Piramal is at this point of time. It is a wait-and-watch to see how the company is making progress on its retail strategy.
The hectic news flow coming from Nifty 50 companies has been amazing, don’t you agree?
Yes, we live in interesting times, as the Chinese proverb goes. And I can only expect more of such corporate action because the timing is right. We are seeing a fabulous surge in corporate profits. This is just the beginning. Market is clearly recognising that the next two-three years will be exceptionally good in terms of corporate profits. There are so many sectors which are doing pretty well. Even software, which is a beleaguered sector, if you look at the midcap stocks which have or at all-time high, we are surprised that despite so many macro global headwinds even that sector has delivered decent returns to investors.
This is as good a bull market as it gets and managements also recognised that this is the right time to take these kind of corporate actions and whether it is a buyback from Piramal or L&T, they certainly know that that is a good way of boosting their profits. In case of L&T, I would say it is largely justified because they have been focussing very heavily on their ROCEs and their return ratios have improved, so it is now solidly free cash flow business for them, the entire EPC business, which is a large chunk of their revenues, so that is perfectly fine.
Piramal Enterprises has extremely attractive valuations for different reasons. They want to correct that as well through a buyback. All these things are going to keep on coming and leading up to maybe the 2024 general elections, I do not see any threats to this bull market and we may have all these corporate actions, a very vibrant IPO market, new listings, preferential issues etc. That is going to be the norm going forward.
Will I be off the mark, on the mark if I say that Tata Motors perhaps would be the biggest turnaround story of our careers?
I do not completely agree with the turnaround, but it is one of the most volatile stocks. One of the most volatile car companies also that I would say and while it is flying just now maybe because of global macroeconomic trends or some events somewhere or the other, a 5-10% volume change in JLR makes a huge difference to Tata Motors’ performance. This is not a secular growth story like a Maruti or Eicher where you expect that there may be cycles, but at the end of the day, the trajectory is on the up move. In the case of Tata Motors, because of its global operations, there are just far too many moving parts and then there are difficult to understand issues like capex, cash flows which are very difficult to determine and then the success of new model launches. There are too many risk factors when it comes to investing in Tata Motors and right now they have done well, maybe blue sky scenario for them but it does not take while that maybe two-three quarters down the line, again, you may feel the stock has corrected by 30-40% because of a loss situation in JLR.
Basically, the breakeven point for JLR is very high and that will keep on impacting the performance of Tata Motors. What I also do not like is that they are losing market share in their primary business, the commercial vehicle business and that also is a bit of a concern and at the end of the day, you call it Tata Motors but what drives it is JLR and one does not really have a handle on what the performance of JLR could be three to five years down the line.
One cannot say the same for Maruti or Bajaj Auto or Eicher Motors, we have a very high level of visibility. I would never like to buy Tata Motors at highs like this. A 30-40-50% correction from the highs and you play a contrarian strategy – that will work out in Tata Motors.