Dipan Mehta on the next multibagger, ITC demerger & IndiGo stake sale

“It is best to have a small allocation, maybe 10-15% of your portfolio in concept stocks like Nazara, Zomato, Nykaa, PB Fintech and Paytm, and if you were lucky and get a winner, it will make all the difference to the returns we generate in the 2020s right up to 2030,” says Dipan Mehta, Director, Elixir Equities.

Rakesh Jhunjhunwala had invested in Nazara. Are you still holding on to it?
I have said earlier that in 2030, multibaggers will come from stocks like Nazara, Zomato, Nykaa, PB Fintech and Paytm. I do not know which one it will be but these are all concept businesses, these are all businesses which can scale up really well with high ROIs and once there is break even point, then the kind of profits that these companies’ new age digital business can generate is unimaginable.

It is best to have a small allocation, maybe 10-15% of your portfolio in these concept stocks, and if you were lucky and get a winner, it will make all the difference to the returns we generate in the 2020s right up to 2030.

Dissect the market impact for us in terms of sectors and companies, given that Europe is going through an energy crisis. It is either eat or heat. We have heard stories about how it is getting impossible to manage paying electricity bills by 20% of the US population. If the world is going through such a sharp energy crisis, what would be the implications on India and company specific effect?
From a sectoral point of view, I do not look so much at the global factors per se but I look at the corporate earnings and two sectors particularly came with very good set of earnings and we are focussing on them. One is of course banks and NBFCs and the second was automobiles. One could add engineering construction companies to that list as well.

There are a lot of disruptions and too many variables playing in the global market but these three sectors are India centric. They are not much impacted by global trends per se and after many years of underperformance, these stocks are coming back. These sectors are coming back big time and all of these three sectors are entering into a new growth phase; banks because of rising credit, lower NPA and automobiles because of the pent up demand, call it completely doing away with supply chain issues and overall premiumisation taking place over there.

A lot of the projects had been bid for and the bulging order books are now getting translated into actual revenues. There is a great deal of certainty of earnings in these three sectors and that is where we want to look for the best stocks and position our portfolio in these outperforming sectors.

What is the view on Jubilant Food? Sameer Khetarpal joined as the CEO effective September 5; strategy and plans have been laid out. Will it take some time before we see him actually walking the talk?
Khetarpal comes with a superb track record. He comes at a time when the QSR industry is also on the upswing as there are many opportunities. There has been a shakeout as far as the entire sector that is eating out is concerned and a lot of unorganised players are feeling the stress post Covid. There is generally a shift towards more hygienic western oriented food dishes and that is why Jubilant Foodworks and Devyani and some of the other companies are in favour.
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Yes, the valuation is on the high side and that is really a concern but if you are a long term investor with a 3-5 year view then certainly even Jubilant Foodworks can deliver very good returns going forward. There is great scope to increase the network of their food chain and there is great scope to move up the value chain not only in delivery but dining in as well and the company is also trying to experiment with new formats and new cuisines and that is very positive.

Generally we have a very good view on Jubilant Foodworks and the new FMCG stocks investors have made great money on, like HUL, Godrej, Nestle. But all those FMCG players are now reaching maturity fast and the next consumption leg up would be from QSR companies, retail companies to an extent and building materials, auto and real . That is where the investors need to focus on.

Is the fact of Gangwal family selling a part of their stake in IndiGo in the open market could be an irritant and a big overhang for the stock?
Along with all the other challenges in the aviation industry – increased competition and uncertainty as far as aviation fuel prices are concerned and also pent up demand starting to flatten out. This additional uncertainty about a large promoter wanting to exit India’s largest aviation company also adds to the issues with Indigo Interglobe.

In my opinion it is best to avoid the stock at this point of time. It is not really cheap and cannot give great returns from this point of time. At best it will give market related returns. Outperformance seems to be a bit difficult at this point of time and the way the competition is shaping up, the way new airlines are opening up and new aircraft being ordered by the competition, it is not unthinkable that a few quarters down, we may again witness price war which will certainly damage the financials of the entire aviation industry Interglobe included.

ITC year to date is high by 48%. Top boss Sanjiv Puri is travelling with Piyush Goyal to San Francisco and has announced there that very soon we could see ITC Hotels being a separate company. This is the first time ITC demerger plan is being confirmed.
Markets will receive that particular proposal very well. They have been clamouring for a demerger and that could be a value unlocking opportunity with focussed management. Standalone companies will enable investors to play those specific investment themes and generally the outlook for hotel companies is pretty decent at this point of time post Covid and ITC hotels with its brand network and a decent track record will find many takers in the market.

Today if I want to buy a standalone hotel company the only choice is Indian Hotels, maybe EIH. So, we will have one more stock to buy as far as standalone hotel companies are concerned and trying to buy through ITC was never a good idea because ITC is a conglomerate with many other businesses which have completely unrelated variables per se. So from that point of view it is positive. Overall ITC has done well but it is not a favourite of mine and the reason for that is that the main tobacco business is just not going anywhere. It generally reports low single digit kind of volume growth rates and that never is very attractive from a growth investment perspective.

While it generates a lot of cash, it is attractively valued has decent ROIs, ROEs but end of the day there is not that much growth as far as ITC is concerned and I think their performance as far as FMCG in non-tobacco brands are concerned is very mixed and they do not have any kind of profile similar to other FMCG companies.