Hemang Jani on what to do with Zomato, Paytm now

“People do like Paytm. It makes a lot of sense to use that app but having acquired such a big customer base, one is not very sure how exactly through various other products like loans and wealth, the company will be able to gain a good amount of traction and build a good profitable model around it,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

This is a market where wheat is getting separated from the chaff, valuations are coming under check. When one sees Indian Hotel or Raymond’s or Phoenix Mills outperforming, the market is telling you that in India the inflation pinch is not going to be that high and somewhere the consumer who is back, is here to stay. Do you agree with me?
Yes, I definitely agree that we are all used to a little higher inflation and typically those are the periods where one has seen a very healthy corporate earnings growth. So, a little higher inflation is not necessarily bad for the corporate sector or the stock market. The only point is that when the crude price shoots up beyond a point and remains there, one may have some challenges to deal with in terms of your rupee and other dynamics at play.

I definitely think that the growth we are seeing for last two years in corporate earnings would not have too much risk because of the high inflation that we have seen. At some point, the government would definitely do its bit to cool off the inflation through various other measures and that should definitely be good for the corporate sector.

Also Read: Don’t see a case for a significant market correction from current price point

We have been speaking to a lot of experts and they have been bullish not only in auto ancillaries but overall ancillaries as well the capital goods, equipment names etc. Would these stocks be on your radar?
Absolutely. The last quarter’s numbers for most of the capital goods companies – be it ABB, Siemens, L&T, Cummins – were pretty decent despite the input cost price pressure and given the kind of thrust that we are seeing from the government side on manufacturing, PLI etc, it is working well for the revival.

Now that we have been talking about the capex revival for many years, people are not believing that when one looks at the company's order flow and management guidance, there are definite indications of decent revival. We do expect this space to do well this year.

What is Zomato trying to do with the Blinkit acquisition?
Given the way they are looking at their surplus liquidity and cash, the overall comfort and the credibility of the management has gone down. Earlier, people were giving them the benefit of doubt that the kind of platform that they have and the lifestyle changes and the eating habits etc. at some point would start giving them positive results.

But given this sudden desperation to go out and buy the remaining stake in Blinkit and giving away about Rs 6,000 crore is something that the market would not be able to fathom and anyway the risk appetite is clearly missing for people to go in for very fancy business models, no profitability and even the cash getting burned out like this. It will definitely hurt the sentiment more. So stay away from these companies, at least for now.

For Paytm, just about everything that could go wrong has gone wrong, It has brand, it has data and it has cash on its books?
At some point, people consider the fact that majority of the weak hands are out of the stock and at some point, if the company shows positive momentum on certain data points, we might see some pull back. But I guess it is early days yet because the larger question that people have is ultimately what is going to be the final business model that would give them some sort of a visibility on the profitability and a sustained profitability?

People do like Paytm. It makes a lot of sense to use that app but having acquired such a big customer base, one is not very sure how exactly through various other products like loans and wealth, the company will be able to gain a good amount of traction and build a good profitable model around it.

Those doubts are pretty much there and we might see some pull back because a lot of investors have actually got frustrated and got out of it but I am not too sure and convinced that this makes a lot of sense at this point of time.

The only internet stock that seems to be standing out is EaseMyTrip for whatever reasons. What do you make of that?
It is a very niche kind of a business model and people are going to be using that because of the kind of pricing that they have offered. There can be some sort of a case for a good amount of profitability. In any case, it is a small company and so a lot of people who want to bet on the internet companies or the travel related theme, can have a small allocation and still the stock can do well.

I have not looked at the company in greater detail but it cannot be compared to names like Zomato or Paytm which have a much higher cash burn and no road to profitability at least in the near term. Against that, EaseMyTrip looks a little better in terms of business model and profitability.

How are you looking at the entire pharma space? Is there any name that stands out to you? Morgan Stanley has been betting on Sun Pharma?
We like two names at this point of time; one is Dr Reddy’s where we are looking at 16-17% kind of growth and like the fact that the company has dealt with the last two years much better compared to other companies. The other one is Gland Pharma, which is a niche injectables play and a good amount of growth has already been delivered in the last three years.

In the next two years, we are looking at more than 20% kind of growth. These are the two names where we have higher conviction in terms of the earnings growth and the stocks have corrected in the last six months. It makes more sense to go for them.