Where is Vodafone Idea headed? The worst is behind, the best is yet to come, that is what Mr Birla seems to be indicating. At Rs 9.5, is it worth the bet?
Anshul Saigal: In this space, one thing that is very clear is that ARPUs have bottomed for the sector as a whole and we are likely to see price increases going forward. I remember that ARPUs had bottomed somewhere close to Rs 125 and they had peaked in the previous cycle at 200, they kept coming down and they came down all the way to 125 and we are well on route to rates higher than 200 at this moment, which cannot be anything but good for this sector as a whole and this company in particular. However, one has to keep in mind that the competitive dynamics in any sector will determine how one company does over the long term.
In this space, what is critical is how much capital expenditure you incur in adding capacities, which is in essence, a function of what is your scale. Now, if you look at this space as a whole, there are really three players who are competing for space in this space and are competing for market share, that is, and of the three players, the top two players have significantly higher scale, market shares in the range of 35% to 40%.
As a result, they have greater capex availability because cash flows are greater and their network becomes better than the third player. The third player as a result lags in how its network plays out and that reflects over a long period of time in the relative cash flows of that company versus the top two players. It will in effect reflect in the stock price. If I was taking a bet on a name like this, which is a relatively smaller player in a large space, I would look at it as a lottery where I will not put substantial money there. Of course, we know that the balance sheet is really not squeaky clean here, I would take a small bet. If that bet works for me, then I make money. If it does not work for me, then the money that I lose, I do not really fret over it too much. So, that is the setup that I have in my mind for situations like this and maybe this situation in particular.
SIPs means more money for AMCs and stocks are at 50% and 50% in this year. While we may do a lot of macro analysis of dollar index and China and Korea and semiconductors and cycles and EBITDA and margins, here is like a simple half folly, which is that SIPs are picking up, AMCs will make more money and the stocks even in a raging bull market have given a 50% return. Is there money to be made in the AMC stocks?
Anshul Saigal: I am very happy in this role and there are various ways to make money in the market. Just like if you are on a dessert table and there are multiple desserts, you do not have to eat all of them, you choose the ones you like. I am very happy for the peace of mind and freedom that I get in my investing in this role.
Having said that, I could not concur with you more that this is one space which was a half folly. I still remember when the TER ratio fear came early last year, that is 2023, sometime in March or April, HDFC AMC used to trade at Rs 1,600 and it had fallen from nearly Rs 4,000. That was the level of fear which this space was absorbing at that time. Our belief was that if this TER fear actually does play out, then most of the downsides are already priced in because the stocks have corrected in that fear by so much. If it does not work out, then the upsides are material. These are companies which make over 100% ROICs, highly profitable businesses where investments are quite limited in the businesses. And we all know, like you rightly mentioned, that Indians are financialising their savings, so that kitty will continue to go up. In that setup where expectations were so low and where markets were doing well, Indians were investing more, SIPs were going up, it was really a no brainer in a name like this or multiple names in this space.Much of that has already played out. HDFC is 3X from that price. Many of the other names have done very well. In the current year, these stocks are up 50-60%. To expect that something similar will happen going forward will be an overstatement. I think that one should temper expectations going forward. And just like I said earlier, on a dessert table there are multiple desserts to be had, at this time there are more attractive opportunities in the market, this is not the space that I would put a chunk of my money in at this moment. It is a great business, but most of it is priced in.
This is nothing which changes. I do not think there is a trade in Trent and Titan just because Mr Noel Tata is going to be part of Tata Sons. These are independent businesses which are doing well irrespective. Last week we saw a movement in Trent, a spike in Indian Hotels, a big uptick when it even comes to Titan.
Anshul Saigal: When these events lead to such sort of moves, they are opportunities to sell not to buy because nothing in the fundamentals of the business has changed. In fact, in the case of Trent, Noel Tata was always the chairman, the person running the business all this while. His becoming the chief at Tata Trust really does not change much as regards business for Trent. It continues to be a great business. It is run very well and that aspect of the business is priced into the stock price. The stock trades at north of 50-60 times EBITDA. Where is the room for that multiple to expand?
And so, any spike that happens because of events like this, for smart investors, these spikes are times to really sell, particularly in names where valuations already price in much of the upside. Having said that, I must say that, like you rightly said, you have to give credit to this business, this group. Just like as we grow up and in our journey of an individual where you created enough wealth for your own self, in the latter stages of one’s life, one really gives back as much as is possible to society. Tata Sons has a long history, it is an old group, and given where they are in this phase, they are giving back so much to society.
Ask a new company, a new unicorn, whether they are going to do something similar and you will not get the same answer. The answer will be quite different. It also depends on what stage in your growth journey you as a company are and how much you have got from society and how much you want to give back as a result.
The other talking point in the market is how Hyundai IPO has, the response from retail and HNI has been really soft so far. We have not seen much traction. Of course, it is a large IPO, so it will suck that much liquidity out of the system. But what is your take on Hyundai? Should one subscribe or avoid?
Anshul Saigal: In general, I am not too much of a fan of IPOs or investing in IPOs. No one has any incentive to leave money on the table – not the promoter, not the investment bank. Many of these IPOs are priced fully. We have seen also in history that once the IPO lists, you get better prices in future, in many instances. Of course, there will be exceptions, but in the majority of the instances, that really happens.
In this particular case, it is a large company, very well respected in India. And even if one wants to invest in this business, one can do that, but over the long term you will get better prices. So, I am on the sidelines.