Tata Consumer no more an ugly duckling; positive from 1-2 years perspective: Hemang Jani

Within the discretionary space, Titan has been our preferred pick and we have a positive bias, says Equity Strategist & Senior Group VP, MOFSL.

Let us take a look at the commentary coming in from Titan. 83% of the stores have opened up. We have seen some interest building once again in the stock. They have commenced operations, manufacturing and so forth but revenue in May was down 80% and June was down 30%. We all know what is happening to the gold prices as well. Given the quick pace of recovery, what would be your view on a stock like Titan?
The turnaround has been quite spectacular. In the month of June, 70% of the operations were in place. It is not very clear from the management commentary whether it is pent-up demand or we are looking at a broad revival with the marriage season. We will really see how that demand really shapes up over there. But I think given the fact that their positioning is a very strong and large part of India, except for those three states, the Covid impact is not that big. That means somewhere the revival is going to be quite good for a company like Titan.

So within the discretionary space, this has been our preferred pick and we have a positive bias on the company. Also considering the fact that it has not really run up compared to some of the other sectors and companies, I think the performance of Titan has been slightly subdued. So overall, we have a positive bias on the company at this point of time.

What is your view on the smaller banks like Federal, DCB and RBL Bank? Is there money to be made there now that the largecap banks have raised capital and stabilised?
Things are still not very clear in terms of how things are going to pan out because at this point of time, the capital raise and the way the investors are showing their preference towards the larger ones, it will be too early to conclude that for some of the smaller banks like RBL Bank or Federal Bank and whole host of those, the asset quality side pain is over and things should be back to normal. Whenever you see some of these banks raising capital, you might find some interest but I think in the overall scheme of things, in these kinds of high beta small banks, one should take very small exposure if at all you really want to go for it.

The focus should be on the larger ones where there is going to be a little bit of comfort and stability both. So I think not too gung-ho on the smaller banks. In the long term if you see the way things are moving, the larger banks will become far more bigger because of the plethora of subsidiaries and the kind of positioning that they have. So I am not very sure how exactly the business model of the smaller banks will be able to adapt to the way things are going to shape up. So we are not too positive over there.

I do not know how closely you track Tata Consumer but it has had a phenomenal recovery from the March lows; almost 100% plus if I am not mistaken. Do you think from an investment perspective, the story has just begun here?
Absolutely. It is a very compelling story. People are now treating it at par with some of the other FMCG companies given the kind of product basket that they have post the demerger that had happened a few months back and given the fact that we have a new management. The entire product basket is looking extremely impressive. People definitely would compare that with the larger FMCG companies and there is still a large valuation gap. So it is one of our top picks in the consumer sector per se.

From being an ugly duckling a few years back that nobody was really excited about and it had done practically nothing but I think the last one year has been exceptionally transformational for a company like Tata Consumer and one is extremely positive from a one- or two-year kind of perspective.

We have been tracking the recovery of the rural segment. Would you be positive on auto as a blank canvas or in particular the stocks where we have been seeing signs of recovery in sales?
It makes more sense to stay selective in the auto space now that we have seen a run up. From our scheme of things, we like the revival of HeroMoto because their rural presence has been extremely strong and we think that remains to be one of our preferred picks. Also at the same time, we like both Eicher and Mahindra & Mahindra because of the kind of growth profile which they have; Mahindra on the rural side tractor and Eicher because of the kind of revival we have seen in the RE because earlier there was a fear that because of the price point, the revival there could be the last one but we are seeing a very strong momentum in both these names. So we think that because of the better visibility coming from the rural side, one should remain positive on some of these names.