Ajay Srivastava, CEO, Dimensions Corporate Finance Services, says there are three sectors where he will love to buy on dips. One is MNC infrastructure stocks. Three or four of them qualify in that category straightaway. Number two, are companies like the payment system and the food delivery companies. Finally,. defence PSUs represent the best opportunity because the runway is unlimited and there’s a monopoly. The worst, because the government’s diktat on what they make on every order can change the fortune of the company. High risk, high reward, it is Poker at best.
Let us look at something where you will say, I want to buy this stock and I am just waiting for a better entry point. It could be 5%, it could be 15% or it could be 20%. That is a judgment call. Which are the names where the business is durable enough to give you a 20-25% growth? You are just waiting for the right price, maybe that moment of panic, or that moment of turbulence in the market, and you are happy to press the buy button.
Ajay Srivastava: Very clearly, the MNC infrastructure stocks. Three or four of them qualify in that category straightaway. You want to be there in the company because you have not underinvested. Number two, companies like the payment system and the food delivery companies. The runway for these companies, infrastructure relating to railways, infrastructure relating to power systems, infrastructure relating to the general build up of the economic assets, including transmission assets, the sectors where the growth of the runway is incredible. So that is one.
Number two, if you look at the monopoly of the payment system company, one company. If you look at the duopoly of food delivery to companies and they will not become food delivery anymore, they will become advertising companies like the US has become with phenomenal entry. That is the new delivery, the retail companies which are coming out. Those are fantastic companies, which you buy on dips.
In case of defence PSUS, if they correct significantly, we would add on to it. We already hold the stocks. But they are really very expensive. But at any point of time, I still believe that the PSU companies in defence represent the best and the worst opportunity. Why I say best is because the runway is unlimited. I say the worst because of one government decision which says that you will not get 14.5% margin or 12.5% margin from here onwards. From the defence industry orders, the whole fortune of the company changes.
So please understand, defence companies represent the best opportunity because the runway is unlimited and there’s a monopoly. The worst, because the government’s diktat on what they make on every order can change the fortune of the company. High risk, high reward, it is Poker at best.
In QSR, there was a lot of interest in the market and understandably so because the numbers were supportive. But in the last one or two quarters, we are witnessing the darlings in the QSR space, Westlife, Jubilant, getting a knock on their rate of growth. And hence, some of them have started looking expensive. Do you like that business at current levels?
We have no investment and no investment thesis. The competition from Cloud Kitchen is enormous. Nobody wants to go out and eat at a McDonald’s. Kids once wanted to eat it. At the end of the day, you do not eat the pizza hard, you have so many gourmet pizzas available. Those people have lost the plot in India at this point of time, number one.
Number two, is the overestimation of the market. In a country where almost 60-70% of people need to be fed food grains free of cost to survive, how big is your market for the QSR? Look at the pricing of those products. When they were cheap, they were good. When you price them the way they are priced today, you are taking it out of budget for a whole amount of the community of India and the consumers of India. They were a darling at one time because they promised to access a large market. The cost, the pricing base of the products was much cheaper than what it is today.
But at today’s prices, they have narrowed down their customer bucket, and that is showing up. Cloud kitchen on top, home delivery on top, their goose has been cooked. I do not think there is a great future. They have got a long time to come, given the fact they compete for retail space in malls, which is expensive. At the end of the day, retail is expensive, maintenance costs are expensive and people are expensive. They will have a troubled life, in the next couple of years, because the cost is working against them. The consumer dynamics is working against them. They are fighting a consumer trend on a higher cost base. They will continue to underperform.
You mentioned transmission business and transmission towers and some PSU companies in the power space, PFC, RFC variety, which even after the runup are under one time book. Have you looked at the recent IPO offering? What is out there? IREDA, the renewables, NBFC, or even Tata Technologies, for that matter? Would it interest you?
When you want to wait to buy, not many may realize that PFC was less than Rs 100, with a dividend yield of 14%, less than a few months back. That is an honest fact. And we hold the stock and that’s a disclosure. We held it for dividend, not for capital increase. Again, back to the point, these are monopoly stocks of power finance. No bank can afford to fund it, nobody.
If you want to set up a power plant in this country, you go to these two companies, REC and PFC, there is nowhere else to go. IREDA falls in the same bucket, absolutely. Monopoly status, government guaranteed, ability to access fund, ability to access global funds, green funds, it is perfectly positioned for the right market, where the green is truly green for even investors. You are perfectly positioned to go for the IPO, should you be lucky to get it. The problem has been a few IPOs, like Tata Technologies. Maybe one out of a family member may get it.
We do not even make an effort to put our family money in these IPOs because if you do not have institutional allotment, we do not do it because how do you get these shares? Now, when it lists and what price, we will see. But the answer is yes, you got to be really lucky, look at the lucky stars and apply for the right time and you might get it. If you get it, you are lucky. If you do not get it, wait for a time to get in. But both are good stocks.