Abhimanyu Sofat's sectoral picks in telecom and aviation
Airline mergers are always tricky, considering that you have to slots at various airports and getting that standalone is very difficult unless you merge. The problems at Jet are multi-faceted it is not only related to debt. From an operational perspective as well, the employee cost and the other opex cost for Jet os significantly higher relative to industry standards.�
Irrespective of the fact whether RBI gives money to the government or not, if stability is maintained in the market, then these issues become a non-issue over a period of time,? Abhimanyu Sofat , VP-Research, ?英雄联盟竞猜观看最新版 , tells ET Now.
How do you see a stock like Jet moving now? Tatas have indicated interest but there is no timeline definition or anything substantial.
Airline mergers are always tricky, considering that you have to slots at various airports and getting that standalone is very difficult unless you merge. The problems at Jet are multi-faceted it is not only related to debt. From an operational perspective as well, the employee cost and the other opex cost for Jet os significantly higher relative to industry standards.?
Air Vistara has done a commendable job as a full service provider compared to Jet leading to increased market share. So, for Jet, getting this deal would be the only alternative left right now. I feel the government would always want a deal to happen. Otherwise, the kind of job losses and media buzz that went around last time when Kingfisher went down is something that the government would not want to happen again. For that reason, they might help accommodate as much as possible for a deal to happen. Otherwise, the kind of job losses and media buzz that went around last time when Kingfisher went down is something that the government would not want to happen again. For that reason, they might help accommodate as much as possible for a deal to go through.?
In terms of valuations, I do not see the existing shareholders making too much money because a large amount of capital needs to be deployed within the company going forward. From that perspective, it is better for investors to stay away from Jet.?
Traders can take their own calls because the core business still has lot of challenges going forward. The supply demand scenario is not favourable for the industry as we have seen a significant ramp-up in supply related to demand though the last three, four years were quite good in terms of demand.?
From that perspective we would recommend to stay away from Jet at this particular juncture.?
Analysts believe that some of the pricing pressures on telecom sector will persist for some more time to come. They also believe that ARPUs have bottomed out. Is telecom segment worth a relook?
One needs to clearly look at all three companies separately; Jio, Idea-Vodafone as well as Bharti. In case of Jio, a rise in revenue market share would mean going forward, they may able to sustain quite well. We are quite positive on Reliance on account of Jio.?
In case of Vodafone-Idea, the capex they require going forward is too much and the balance sheet pressures will likely lead to significant decrease in market share for Idea-Vodafone.?
With regard to Bharti, though the management did say that they are done with most of the normal capex, they have capacity for only 18 to 24 months and they have to increase their capex. We feel that may not be the case going forward in the advent of the 5G rollout.?
Bharti needs to look at two situations. one could be to remain a strong second rung player in India or try for the top spot considering that Vodafone-Idea is going through its current challenging time. We feel what it is likely to do is probably pare down its debt by monetising its Bharti Infratel stake as well as looking at the IPO for the African unit and then probably ploughing back that money to use to build on the 5G network and gain market share within the Indian market.?
Things are not that rosy for Bharti, there are still a lot of challenges. Still, in terms of preference, I would say Bharti would do better than Vodafone-Idea.?
How would you approach the oil marketing space?
We believe that lower oil price is a positive for the downstream companies but the volatility is so high that it has more become a kind of a trading stock for investors. We would recommend investors to look at these stocks when they are trading somewhere close to around one time to 1.2 time price to book and not look at the stocks just because oil price has come down. It is likely to sustain going forward because the volatility is earnings is too high for investors.?
Also, the inventory loss and gain is quire sporadic over quarters. Within the sector, we would be more bullish on something like a Reliance because the core earning visibility is very strong in relation to the other companies.?
The second one within the sector would be the gas companies where we see earnings growth momentum to be pretty good and they are relatively insulated from the oil price change to some extent, not obviously 100% so that would be the segment where we would be more sanguine rather than getting bullish on OMCs.?
Today there is the RBI board meet. What do you think the markets are hoping to hear today?
If you look at the issues which are at hand, one is related to certain PSU banks which are under PCA and the second issue is related to liquidity. Net-net, what we are going to see over the next couple of weeks is going to be probably an increase in liquidity going forward.?
The headline inflation number which is what the RBI focuses on that has more or less been benign overall though the core inflation number was high. With regards to loans to SME, already RBI has given 180 days in terms of keeping any loan which is given to an SME as a standard asset relative for other corporates at around 90 days.?
RBI has been slightly lenient with SME and going forward also you are going to see the liquidity to these SMEs are going to increase. With regard to the amount of capital that RBI holds and money being sent to the government, these issues do not matter beyond a point because at the end of the day, the regulator has to ensure that there is stability and irrespective of whether they give money to the government or not, if stability is maintained in the market, these issues become a non-issue over a period of time.
Are Siemens and Yes Bank on your list this morning?
After six years, we have seen a double digit growth in Siemens, which was partly led by one-offs. The capital goods sector seems to be doing quite well in this particular quarter whether it is L&T, Siemens or KEC.?
Overall, our view on the sector is quite bullish except for BHEL where we have seen a significant increase in working capital. In case of Siemens, what needs to be looked at going forward is whether there will be a ramp up in order book as there was not much growth in the order book this quarter.?
From a current valuation perspective, we see around a 10% odd upside in Siemens until and unless we see a robust growth on the order book side.?
After a while, Reliance Industries has seen a build up of about 2.5-3% knocking at Rs1130. Why has stock lost its momentum? Are you still recommending it to clients?
Yes, sure. Visibility wise, Reliance is one of the most preferred picks for us. Obviously, below Rs 1100, it will be the best price to look at for this particular stock. In terms of core earnings, the earnings growth would be there but it would not be close to 20% odd. It would be around 12-13%. For that reason, growth-oriented investors may not be looking at this particular stock. Our view is there are enough drivers in terms of increasing utilisation, gasification of pet coke unit and that is likely to happen next year which will aid the increase on the GRM side.?
For that reason, Reliance continues to be good though there maybe some short term concerns. But we are quite bullish on the company whether you look at the retail business, the Jio business or even the core businesses. It is not as volatile relative to the crude price going up and down so we are quite bullish going forward.?
What do you do with a Yes Bank right now?
There are too many moving parts in Yes Bank. To a lesser degree, this kind of a situation was happening in case of Axis Bank also but we saw them handle it pretty well. But in case of Yes Bank, since the current chairman of the bank was the only face of the company, obviously people are more concerned about the growth going forward for the bank. Our recommendation to investors is that let a name get approved and then it will look good. Remember that the growth in terms of whether you look at advances and all has been pretty strong for the bank but you need a heavyweight person to drive the company. With the kind of news flow that we are seeing over the last couple of days and weeks, it is better to stay away and look for an opportune time only after a name has been announced.?