3 pesticides stocks that will benefit from improving rural demand

Good companies will go ahead and raise capital and not bother too much about the valuations, says Chakri Lokapriya, CIO & MD, TCG AMC.

We were talking about Escorts in particular. The kind of focus we are seeing on some of these stocks with the resurgence in tractor sales, the agri demand story as well as earnings. What are you looking at when it comes to this particular pocket of the market and the kind of opportunity you see here?
If we look at Escorts and even M&M’s tractor sales as well as the management commentary, it is very positive. It is largely an indication that the big numbers of corona cases have been in the big cities and the smaller cities and villages have been less impacted. Coupled with that, you also have a good monsoon and all these things are adding up to fairly better than expected tractor sales.

So Escorts and M&M are the two main companies in this space and they will continue to benefit. It is not just these two companies but all the pesticides companies like Coromandel Fertilisers, PI Industries and SRF that will also benefit because they also cater to the same end customer.

The other big newsmaker has to be Axis Bank. They are going to go ahead with getting a formal approval for that massive fundraise that they are looking at and we are likely to see an announcement post the board meeting.
Absolutely. These are the times when good companies will go ahead and raise capital and not bother too much about the valuations at current levels. If you recall and look at what YES Bank had for a long time, it ultimately went down and it was not a good ending. So in this environment, it is not advisable to be bickering about the valuations but go and raise capital so that they can increase their market share. Being a stronger player means a stronger capital base and from that perspective, Axis Bank is doing a good thing and it will find appetite for the capital raise. The company is well-placed because it has exposure to both corporate as well as retail loans.

The gas infrastructure will be $60 billion. That is the word coming in from the minister. Will there be any beneficiaries in the longer term?
Various end users rather than the gas producers themselves will be the beneficiaries simply because if you are going to have a controlled price, that kind of limits the ROE and the returns potential. It also increases the risk of regulatory intervention. So yes, as and when this rolls out, this will be a huge advantage to lots of end user industries including the power industries and those are the companies that I would focus on.

I do not know if you closely monitor this theme or not but is Dixon Technologies on your radar?
While I do not follow the company fairly closely, I think it is a good move simply because set top boxes have largely been imported. It is quite a big import cost for all the various cable companies as well as the set top box providers companies. So from that perspective, it lowers the cost and in an environment where people have been sitting at home watching TV, I think it will be a catalyst for faster penetration of set top boxes.

The railways are inviting bids for 150 private trains. What are you thinking of that move? How much interest do you see there?
It is a great move. The government is expanding the number of kilometres of railway tracks but I think the ancillary companies are the providers of seats, fans, electrical and electronics equipment that go into a train and they will probably use a different set of suppliers in train and enhance the experience as the government wants it. So right from ABB to Cummins to some of the seat providers; all these companies will benefit. I think that is the way I would approach it rather than directly buying the railway companies.

We are seeing this pickup currently in staples and rural consumption and online demand. But there is a thought that implies that this is only going to last just in the short term.
There are a couple of good data points. If you look at the last couple of months, consumers have started repaying their credit card bills at a faster pace. So that is a good sign. Partly what happened in the last two months was avoidance of some of the consumption goods and focus was more on the staples. But as the lockdowns open up, consumer discretionary spending does come back to a certain extent. Yes, they might not be big ticket items but clearly refrigerators, air conditioners, washing machines and TVs are likely to continue and therefore companies like Voltas and Crompton Consumer will continue to benefit. I think this trend of consumption will continue as the lockdown is eased in the coming weeks and months.