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    Why Gurmeet Chadha prefers Tata Consumer to Adani Wilmar

    Synopsis

    “In the overall home consumption space. I prefer Tata Consumer more in the long run because the tea and beverage business continues to grow double digit in volume, their Sampann brand which is into foods is doing very well and then the Starbucks AVM, which is the out of home consumption. Some of the other players will recover as the economy reopens and the stock has taken a 15-20% correction.”

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    Gurmeet Chadha, Co-founder of Complete Circle Consultants
    “In auto and auto ancillaries, some of the valuations are pretty cheap and any turnaround at some point of time could be beneficial. Selectively one can look at some of the farm equipment makers, auto ancillaries and maybe towards the second half of the year, some of the two-wheelers and CV names,” says Gurmeet Chadha, Co-founder, Complete Circle Consultants.

    There is very limited choice in telecom. Reliance is a conglomerate, not a pure play telecom player. There is Voda Idea which is not really in the running and so far there is only Bharti left which is the pure play telecom player. Do you still buy it at levels of Rs 750?
    I am pretty constructive there. I was a little surprised that the Google deal happened. According to me, there were some concerns when the Indus Towers stake happened but later the clarification came which allayed some concerns. If one looks at their Indian business, they have a 36-crore-strong user base, they are doing well across mobility, broadband and enterprise now.

    The African business has about 13 crore-14 crore subscribers across 12 African countries that has stabilised. There is the Google deal and visibility in terms of the increased investments which will happen both in network 5G and cloud which Bharti has identified.

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    There are two triggers there. One obviously is the tariff hike and if we see the quality of customers, Bharti has the highest number of 4G customers and they have the highest pass through of tariff hikes. The second trigger could be how they monetise digital assets which they spoke about – whether it is the payment bank or Nxtra. Those to me would be bigger triggers for rerating. Otherwise, the operational performance continues to be strong. There are two strong players and one slightly weaker one in the industry. I remain pretty constructive on Bharti from a long term perspective.

    How is it that you are reading into the developments at Ruchi Soya and how it is with Adani Wilmar? Where do you find more comfort – Adani or Ruchi Soya?
    In the case of Adani Wilmar, the IPO price showed reasonable valuation and discount to peers. At this price probably that valuation gap no longer exists. I think it is a clear leader, there are broadly three segments in edible oil it operates in. All brands, whether it is Soya bean or mustard, sun flower, rice bran, it is a leader with almost 19-20% market share.

    Then the Fortune brand is also extended into packaged foods and other categories which they operate in, which is wheat flour, rice, sugar, soya chunks etc. That is another very fast quick segment but I have always said that most of the items in the kitchen shelf will get branded. What has probably happened to tea coffee will happen to almost most categories. Plus, there is a lot of unorganised market space. For example, pulses is a Rs 1.6-1.7 lakh crore market, of which only 15% is online and a third is industry essential. But at this price, I am not too sure.

    I like this overall home consumption space. I prefer Tata Consumer more in the long run because the tea and beverage business continues to grow double digit in volume, their Sampann brand which is into foods is doing very well and then the Starbucks AVM, which is the out of home consumption. Some of the other players will recover as the economy reopens and the stock has taken a 15-20% correction. I prefer that in my space vis-à-vis some of the others right now.

    How are you looking at the entire PVR-Inox Leisure merger metrics. What does it mean for both the players and the multiplex industry now that there is a huge monopoly?
    It is pretty positive for the multiplex industry and I find the OTT versus multiplex debate over stretched. I think one offers experience, the other offers convenient viewing and binge viewing. Assuming that we are not hit by more lockdowns. just today PVR has Rs 11,000-12,000 crore market cap and Inox probably Rs 5,500-6,000 crore. We are getting the combined entity at Rs 17,000 crore market cap.

    PVR enjoys the premium both on advertisement slots per screens, convenience fees and even on F&B. They are at a premium. So, as the economy opens, this should benefit. Also in 2009, we had about 10,000 single screens. Right now there are less than 6,000 single screen outlets. The movement from single screen to multiplex is a more medium term trend. Every year 10-15% either is getting closed or converted. Covid led to more closures in the last two years. This trend is going to play out.

    This is a slightly more capital intensive business and we have to invest in new viewing formats. PVR has stated that 20% would be luxury formats and we are actually paying for experience. As the economy opens up and assuming there are no further lockdowns, I remain constructive on this as well.

    What is your view on a couple of broader sectors like defence and manufacturing? Do you think there is some more steam left because the likes of Dixon, Amber etc had moved quite a bit higher in the last two years?
    We are seeing PLI led capacity creation. There have been various brokerage reports on it. Whether it leads to a full blown capex cycle is too early to comment on. This is a market where one has to be very clear and not overpay. Some of the names you took are very good businesses but it is a function of what price you pay. When interest rates start going up, the discounting rates start going up. The PE rerating in one soft quarter can lead to PE de-rating. So growth at a reasonable price is a must. There are pockets in manufacturing and defence one can focus on.

    We have a long summer season ahead. The last two years have been bad for the consumer appliances segment and the AC space I think can be looked at again. Again, partially in textiles, partially in some of the ethanol names with the government being very clear about blending going up to 20%, we can expect growth. But these are very long drawn plays and one can selectively look at it. But just to say that this is going to be China plus one and import substitution can be tricky.

    Last year, the buzzword was specialty chemicals. Anything and everything which had chemical went up and people lapped it up even over paying and we have seen a heavy correction. So, we got to be careful. This year, probably we will see the differentiation coming in companies which manage inventory better, manage raw material inflation better and hedge themselves better and have the pricing power.

    What about the auto sector? Would you like to play this theme at all in terms of OEM makers and the component makers or would you suggest a lot of headwinds as far as the sector is concerned and it is probably best to stay away for now?
    In the last three years, the industry has actually shrunk. The two-wheelers have probably shrunk the most and also CVs. And in this two, three year period we had BS-VI transition, chip shortage, cost of ownership going up because of insurance and safety guidelines. Now commodity inflation, rural slowdown and anything else that could go wrong has gone wrong. But there are some makers who have done well.

    Among auto ancillaries, Minda has done well. They have grown in this period and now make 10-15% content per vehicle. From just horns and switches they have gone into airbags, alloy wheels, infotainment systems, car seats. Now they are getting into battery management solutions and so they continue to expand the pie.

    Similarly, I am of the opinion that we are going to see some kind of investment cycle and that cannot happen without the CV recovery. CVs have gone through a very rough patch. Some are available at one time sale and so selectively we can nibble into it as the prices are low.

    Hero MotoCorp is in the news for the wrong reasons but we will wait because it is an income tax thing and one should not jump the gun but look at the valuations – 13-14 times FY24 earnings. So, some of the valuations are pretty cheap and any turnaround at some point of time could be beneficial. Selectively you can look at some of the farm equipment makers, auto ancillaries and maybe towards the second half of the year, some of the two-wheelers and CV names.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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