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    Ayaz Motiwala has been betting on Phoenix Mills & KIMS. Here’s why

    Synopsis

    "Discretionary spending is at absolutely new highs and the index is 20 to 30% higher on a 2-3 year basis. Phoenix wants to be a city centric large retail-led mall sort of a real estate player but their vision is primary retail led. About 10-15 years ago they tried to go to the then smaller cities such as Indore, Lucknow etc. All those cities have grown much bigger over the years.”

    Ayaz-Motiwala-1200ETMarkets.com
    "In a market which probably ended up 4% rupee terms positive or about 6% dollar terms negative, FMCG would have made money for us and that was on the positive side," says Ayaz Motiwala, Senior Fund Manager, Nivalis Partners.

    How has last year been for your portfolios? Where were you caught off guard and could not sell in time and the areas where you have added your positions? How did the fund perform last year?
    For foreign investors putting money in India, one of the biggest challenges is the foreign exchange (FX). The rupee was the biggest loser amongst Asian currencies and on the global currencies as well. The rupee was down 11% but the Indian stock saved us and our net performance was down only about 4% or 5% because the underlying equities actually made money for us.

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    We had a range of companies which made positive returns and I will talk about a few of those which we have been adding as they have been continuing to deliver on the numbers that we expected – be it a discretionary consumer company such as Phoenix Mills which we own for a very long period of time or a couple of consumer FMCG companies which are near lifetime highs. So they also put on some performances for us.

    As you may have noticed, the FMCG index also was positive, driven by a large weight of ITC but a few other names also threw up positive numbers. In a market which probably ended up 4% rupee terms positive or about 6% dollar terms negative, FMCG would have made money for us and so that was on the positive side.

    In terms of being hit a bit would be the IT service side of the business as another extreme. We have more midcap IT names L&T Infotech is one of them. Following the merger, we took a fairly substantial hit in terms of mark to market but we still own the position. We like the company and we are looking to add there as well.

    After a three-year period, the IT services companies which probably doubled in valuation or in case of say L&T, Mindtree and few other midcap names, probably 2.5 times the valuation multiple from where they started, they have probably taken a 20-30% valuation correction. Nothing is really changing in terms of EPS expectations in the short term. Obviously, the outlook is challenged because of US recession expectations etc. That is a broad set of sensitives.

    A fortnight back, Phoenix Mills mnagement shared their strategy where they talked more about going deeper into the country and not being only an urban mall operator. They also shared some big numbers, some new and tier two and tier three strategy as well. How did you analyse the recent commentary on the Phoenix growth strategy?
    That is an old favourite of ours. We have been owning it for a while. If you take a step back in the Covid time, this was one of the stocks which really had taken a massive beating and people said online will take off which it did in a massive way but consumers are back in the malls. They missed that whole shopping experience.

    Discretionary spending is at absolutely new highs and the index is 20 to 30% higher on a 2-3 year basis. They want to be a city centric large retail-led mall, sort of a real estate player but their vision is primary retail led. They have tried about 10-15 years ago to go to the then smaller cities such as Indore, Lucknow etc. which have grown over the years

    They have become big cities now...
    Those cities have grown quite dramatically and this aspect is like revisiting their strategy 15 years ago. The India of the second and third tier is clearly ready to become bigger. So as per the current vision, they want to get to about 12 million square feet from the 6 which they have added. They have commissioned the Lucknow one. They are going to get on. Ahmedabad comes on very soon. They have announced a new deal in Surat as part of the larger top 20 cities but the question that you asked are indeed very well positioned for slightly smaller size, which they have articulated to address the big growth in India and to address that population of India which today is probably buying online in those multiple pin codes. The online guys deliver and address them with this whole offline experience of F&B good dining opportunities along with shopping.

    You have started nibbling into KIMS. There was one side of the healthcare basket which got rerated during Covid and then corrected equally sharply after Covid ended. These are diagnostics, hospital stocks as well. KIMS is a relatively newer name in that list. What is so nice about that business model?
    One of the issues of the hospital business in India historically has been low capital productivity because basically land in India, whether it is used for hotel, hospital or a mall, is very expensive. So that was our pushback. We were never very excited about this.

    Now KIMS, a 10-15 years old company has started an inside out strategy and they are essentially AP, Telangana operator with the smaller or the second tier cities of that state. They have a big operation in Secundrabad but they are active in places like Nellore, Ongole and other such smaller cities where they have started their hospital projects or bought out existing ones.

    The other interesting aspect which stands out in their case is this doctor partnership model.

    They look out for the best doctors in town and partner with these doctors, offering them equity and offering them the flow of patient traffic, which is what they manage with their brand names such as Common Services Sourcing of Materials etc. These are material factors in the operating cost of the hospital business and that has led to a very nice capital productivity.

    If you look at their sort of return ratios and contrast it with the older operators, you will see that they are much more robust and substantially more productive. On top of that, they are building a growth engine. They have already done about two or three M&As from their listing about 18 months to 24 months ago.

    As they promised and build on and they want to go in this contiguous model. They have now entered Maharashtra and they are trying to build again the same second tier city strategy and built from there onwards.

    Phoenix is also a kind of a…
    So the growth of India is being addressed by these companies where the growth is actually taking place. In the case of KIMS, if you want to think it through, from Hyderabad, Telangana kind of a big city model, if you needed major surgeries, you would rush to the largest city of that state, in this case Hyderabad. But now medical care of that quality is coming to their city or town and that is how KIMS is addressing those needs.

    In the case of Phoenix Mills, in states of UP and Bihar, people would go to Patna or Lucknow or other bigger cities for shopping. Now the mall comes to them.

    Now that raw material prices are coming down, volume growth should come back in consumer companies like Britannia or Marico. How is that basket looking? What names do you own and what is the view on volume growth and margin outlook for this entire basket?
    So one of the elements of our expectation and that also implies the element of surprise will be the ability to hold back to the inflation pass through. They have obviously had a huge inflation in raw material cost, transportation, packaging etc and they have increased prices of products to offset that. Our expectation is that some element of surprise will come and on account of that, the revenue increase, the composition in the short term will be still price-led as the volume kicks in.

    So to address that when the underlying growth comes back in rural markets and the urban newer sort of gestating businesses start kicking in, one will actually start seeing the volume growth taking out in the next legs.

    Hence our expectation of the surprise element here and why the markets are excited about having stocks between 52 week highs or lifetime highs and within 10% of that. The next two years’ outlook is very robust and sharp earnings growth will be expected out of some of these names selectively. Some of the larger ones continue to chug along with their larger, very broad, diversified portfolio such as Unilever or even Nestle which have shown much more stable long term growth. But the idea of owning the slightly midsize companies such as Marico, Britannia is to hope for a faster growth.



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    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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