Time for NDTV shareholders to sell in market or give it in open offer: Daljeet Singh Kohli

“On NDTV, our view was very clear that this is probably the time for existing shareholders to either sell in the market or give it in the open offer because the stock itself has moved much ahead of fundamentals in terms of valuations,” says Daljeet Singh Kohli, CIO, Stockaxis.com.

The stock price of NDTV has skyrocketed post yesterday’s news but a lot of question marks remain as to whether or not this is going to go on into a long legal battle or whether or not shareholders are going to tender shares at this price. Have you had a look at the metrics and any views?
Yes, we had a look on that, though it is not a part of our portfolio. In our portfolios we already hold Zee Entertainment and that is purely on the basis of the impending Sony merger and we are very bullish on that. On NDTV, our view was very clear that this is probably the time for existing shareholders to either sell in the market or give it in the open offer because the stock itself has moved much ahead of fundamentals in terms of valuations.

Compared to its other news channel players, it is trading at almost double the valuation. In any case, the stock in terms of valuation does not leave much scope further from here. Obviously, when the stock is under so much turmoil, there will be a lot of volatility in that and if the existing holders are getting 20-25% in the market itself, why not take that out and forget about it? That would be the strategy we would recommend to the existing holders.
To buy new and wait for the entire process to continue and look for some arbitrage opportunity will be a very long drawn process and as you said, there will be a lot of challenges in between. So it is better to avoid that.

What has gone wrong with Lupin? This was a Nifty 50 stock which was endorsed by none other than Rakesh Jhunjhunwala. At some point in time, their margins were nearing 30%, now they are way below 10%. Is it business gone wrong or is it market gone wrong?
It is more to do with the management of facilities and regulatory overhang. They have somehow faltered in managing the regulatory issues well. At one point of time, in 2008-09, when this stock got rerated, the main reason was that their Mandideep facility had got a warning letter and within six months, they were able to get it out. That created a big noise in the market that this is the capability of the management, they can come out with a warning letter within six months.

Now in the last five years, they have not been able to solve very minor issues in various facilities and most of the facilities are under some or the other problem. So one after the other, each one of them have gone into the issues. There is somewhere something missing out on the regulatory part, otherwise they would have probably handled things well.

There is a pricing pressure on all generics that everybody knows but that is industry wide. So why this particular company is facing that issue is mainly because they have to handle the regulator and that creates double whammy because if you have a regulatory problem, then you cannot sell from your existing places. Second you have to spend money on getting that resolved and that is a very costly affair because they have to engage foreign consultants and all of that, who charge through the nose. It is a double impact that has led the margins to go down to just 6% or something like that.

I guess the management will have to do a lot more on that and show some promises on how they are going to handle and how they are going to take this head on. If they are able to do something on the regulatory part, the business will make a comeback. I do not think that is an issue.

What is your take on the entire real estate pack? Jim Rogers is not that positive when it comes to the Indian real estate space but for now, the likes of Sobha Industries, Indiabulls Real Estate and Phoenix Mills are all flying away in trade? How would you view the real estate pack – commercial and residential?
We are very positive on this sector. In fact, in residential, we have two or three stocks in our portfolios and follow different strategies. DLF is there, Brigade is there and we are playing this theme through other home improvement companies like Cera Sanitaryware.

There are a lot of companies which we are looking at in this sector and we believe that real estate has come out of the problems after 10-12 years and when a sector comes out of its issues after 12 years, that means all the froth has gone out. Many changes would have happened in that sector like in this case, RERA has come in; the cost of capital has come down substantially; the balance sheets have improved for all these players.

There are a lot of reasons for us to believe that this story is going to play for a longer time. The good part is that stocks are not running away and they are giving ample opportunity to accumulate at every level. You do not have to rush and run around after each of these stocks. You can accumulate at your pace and ultimately in the next two or three years, will make good money in this. So we are very bullish on this sector.

The stock which is running away at the moment is RBL Bank. There has been a 15% up move in that counter. What is your take regarding that and the small finance banking space?
We are not positive on RBL or these small finance banks. In the banking space, we are going with the large banks like ICICI Bank and HDFC Bank as our top picks and SBI is the only PSU bank to be part of the portfolios. Kotak Bank is also a part of one of the portfolios.

These moves that we are seeing in the smaller banks are more to do with trading spurt and beaten down stocks. People who want to make quick money. can do that. But the idea is that we will stick with those stocks which are more stable and which have a long way to go. So, HDFC Bank is our most preferred pick because it has to do a lot of catching up. ICICI Bank has already done it. So probably the next move will be from HDFC Bank.

What is the outlook in the entire pharma space?
In the pharma space, we have two stocks in our portfolio. One is Gland Pharma and the other one is Alembic Pharma. Gland Pharma is because its injectable business is very strong and while there are a lot of shortages in the product portfolio, they do not have a problem of pricing. Secondly, the last two quarters were not so good and the stock has seen a good beating.

So, valuation-wise, all that froth has gone out and it has now become quite attractive. Alembic Pharma has done capex in the last three-four years. In fact they have spent almost Rs 1,800 crore in the last three years, which is likely to start giving benefits in the next two-three years. So pre-empting that benefit will come and more approvals and more launches will happen.

So, we are looking at Alembic Pharma. Again valuation wise, it is hardly 10-12 times FY24 numbers, which is one of the cheapest in the sector. We are still avoiding diagnostics because these stocks had already a very large base to tackle and even if they do good numbers every quarter, we will have a problem that year on year numbers are looking bad as last year was very good. So let that base effect go away and let the valuations come into a comfort zone, then we will look at it.

Secondly, there is a lot of risk. There is seasonality or a lot of one-time kind of things like Covid cases going up again. So there is a spurt in these diagnostic companies but there will be a lot more volatility. It is better to avoid such a thing and go for more stable companies.

What is your take on industrials?
We are very bullish on that. In fact, the three sectors that we have chosen which will lead this next move of index and the overall market will be autos, banking and financials (BFSI) and capital goods. All these stocks like Siemens, Honeywell Automation, ABB, Hitachi have been on our buying radar since January. We are looking for good returns. In the last four-five years they have not given returns and also, there will be a lot of capex on the upgradation of machinery. Many of these companies have adopted automation and digitisation. In fact, one stock to play auto ancillary plus digitisation is Bosch. We are very bullish on it and very soon we may be adding it in some of our portfolios. This is an area which is going to be a leader in the next few months or so. L&T is also part of that.