Clarity on Voda-Idea, Bharti to emerge only in August now: Chakri Lokapriya

The past 10 years has been a very timorous period for the telecom companies, says the CIO & MD, TCG AMC.


The supreme court judgement on the AGR dues resulted in a lot of mudslinging. Voda-IDEA has been trying to push for a 15-year timeframe for paying AGR dues as is Bharti. How do you approach Idea now? Do you wait for a final judgement and only then take a call or do you think they will be able to win this in the Supreme Court?
Unfortunately the case is being prolonged and there has been some complication about the definition of AGR. Meanwhile, both the companies are highly indebted. They are somewhere between 8 times to 15-16 times depending upon the company. When the Supreme Court had asked for the past 10 years of financials, the company submitted the past 10 years’ financials. The past 10 years has been a very timorous period for these companies.

They had to bid for the 3G spectrum which was very expensive, then the 4G spectrum which was also very expensive and then there were various payouts because the DoT and Trai crossed swords with these companies. Against that backdrop, if the AGR revenue definition is not narrowed or if the repayment time is not sufficiently long, that is greater than 10 years because Supreme Court had said 20 years is a bit too long in its view, it is probably very dangerous and not healthy for the entire banking sector, for the overall economy, for India’s digital push and as well as the companies themselves. Both the companies are highly indebted and I would continue to stay away from them until there is a clarity which seems to be now in August.

There are two things related to the travel and tourism sector. One, Indigo has decided to lay off 10% of the workforce. Two, Rakesh Jhunjhunwala in the quarter gone by has actually bought 1% equity in Indian Hotels which is also suffering because of a drop in tourism and occupancy. What is your view
Indigo today is flying a fraction of its entire fleet and both this year’s holiday as well as business travel have completely vanished or come down drastically. This has led to the 10% layoff in the workforce. Various studies show that there is going to be a 20% fall in business related travel and business conferences in hotels so that kind of explains the Indigo position as it is not able to forecast a normalisation of demand. Aviation has a very high lease cost and is a capital intensive industry, unlike a services industry which does not have that kind of a high capital base and therefore can survive longer during leaner times.

Indian Hotels stocks have been extremely cheap to begin with, even before corona began. Post corona, the fall has been excessive. The company’s balance sheet with the high level of debt has been a fairly well known for quite some time and it has been taking steps to lower that debt and changing its business model marginally in terms of reducing the capital intensity. So, clearly Jhunjhunwala has seen value as probably a long-term investment. If you fast forward a couple of years, it is an extremely strong brand. Today any of the Taj Hotels are not taking any of the Covid patients or quarantine fliers from one city to another. This means those hotels like Lemon Tree, which are taking in some of these patients, are going to have a longer recovery time post Covid because people might be hesitant to stay at those hotels.

Taj on the other hand has taken a conscious decision to completely close down and not take in any such quarantine travellers or patients. In that way its brand is intact and will rebound faster as normalisation begins.

We have got Bajaj Finance, Axis Bank on the radar but yesterday we saw a kind of rebound in those financial names. It is already starting to look a little upbeat and even across the board the midcap financials, NBFCs were rallying. What is your outlook?
In case of Axis Bank, loan growth is likely to be lower than expected. Second, because there is a moratorium period going on, while the slippages will be lower in theory, they need to build up quite a bit of their provision cover for the period after the moratorium because loan growth is in any case going to be weak. While its capital base is alright, the provisioning will depend upon what kind of slippages you would expect after the moratorium. Given these two factors and also the fact that it has been building its retail base over the last several quarters pre corona, and it is going to have if not weak, a kind of tight corporate book relative to its corporate loans. We need to watch out for how the company navigates through not just the next two quarters and also its capital raising plans.

How would you look at a stock like InfoEdge? They are in a business where there are challenges. For naukri.com, there is a problem time for job market. They have investee companies like Zomato, Policybazaar and other start-ups, a space that is in a flux. Yet, the stock touched a 52-week high yesterday. It has gone back to its pre-Covid level when there was euphoria and excitement in some of the so-called start-ups and some of these investing companies!
InfoEdge is a portfolio of companies rather than a company and they have different businesses. Policybazaar was one of the first startup companies, unicorns which came up with bringing all the various healthcare insurance on to a portal. Now that business has done well over time and has accelerated during Covid times and now the company is planning an IPO sometime in the coming 12 months. They will probably do a last round of funding as usually is the case.
The second is Zomato which has had its fair share of issues. They are ironing them out. It is another big portfolio company which is on the block for a potential kind of a capital raise in the coming future.

Third is the naukri.com business. While it has slowed, that is one of the places which will do well whenever hiring comes back. Also, IT hiring has remained strong and will continue to remain strong. Other services sectors usually rebound far faster than any manufacturing sector. So as services recover, that will come back into naukri. Other than that, they have a marriage portal. A portfolio approach or rather the sum of holdings is something which will keep the stock up there and it will continue to do well for that reason.

It seems the IT rally is here to stay and the universe is now only broadening. Midcap IT has also participated in the rally and not just the top 4. Any fresh buys, irrespective of the 50% plus kind of runup that most of these stocks have already seen?
IT good results are likely to continue for the rest of this year. There were some apprehensions that as you go closer towards the end of the year, where the elections can make a dent, usually there is noise but that does not make a difference in terms of numbers.

Infosys is today trading at a discount to TCS and HCT Tech is trading a discount to both Infosys and TCS. We are beginning to see very big order wins across the IT sector and the big IT companies in India are well positioned to grab those IT orders. You will have the benefit of both a currency, rupee versus the dollar to their benefit.

Second, some amount of rationalisation of expenses because companies like TCS are working 60-70% of their employees work from home cuts down a bunch of expenses for them. The IT world was always well positioned for a digital work environment and today the clients are willing to close deals online without physical presence meetings.

All this tells us that the earnings guidance if anything can be revised up as we go into the coming quarters and the valuations themselves are fairly reasonable at this point in time.