Would you be a buyer in liquor stocks? This is one space where we have realised that the consumption patterns have not changed.
No, I do not think so. Till we do not have the parties and functions or the other entertainment going in terms of restaurants and pubs, I think consumption will remain lowkey. Although we are seeing the queues in front of liquor shops, it does not necessarily mean that sales are back to normal levels. It will take a while for normalcy to return and a lot of the growth was coming on account of causal drinking, which will not happen at home. So I am not that positive on liquor stocks unless we have handled this Covid-19 pandemic.
A lot of companies are clearly indicating that demand either is back to pre-Covid levels or it will be back to pre-Covid levels sooner than they anticipated say a month ago. How should one read into that?
At the same time, I need to keep on adding this fact that if these consumption-related companies are available at price to earnings growth of about 2-2.5-3 times, it is still understandable and it makes long-term sense to buy into these companies. But Titan, United Spirits, Page Industries can grow at 10-12% and their PE multiple trailing 12 months is 50 times plus. So these are PEs of 5 times and PEs are unsustainable even in normal times. With so much uncertainty, you would prefer to buy into companies where there is a little bit of margin of safety. What happens if you have a couple of bad quarters in such companies on account of recurrence of the pandemic and further lockdowns and what happens if there is a complete collapse of consumer spending because of declining wealth effect? So these are things which we do not have a handle on.
So if the stock is trading at a reasonable market value, you want to take a chance and take a three-year view. In terms of that these are secular growth stories and eventually earnings will come back but for that you need a margin of safety which is not there for a whole host of consumption-related stocks. So I will be a bit sceptical buying into such high PE companies. No doubt they are great companies, have fabulous track records but they are not necessarily great investments at this point of time.
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