Bullish on construction & infra: Sandip Sabharwal

“On the construction infrastructure side, ITD numbers, I did not see, but HCC and NCC numbers seem to be encouraging and the trend of the capital investment cycle and improved balance sheets continue for many of these players,” says Sandip Sabharwal, asksandipsabharwal.com.

Let us just talk about firstly, in terms of the overnight numbers that have come in, whether you look at an Orchid Pharma, ITD Cementation, HCC, Honeywell Automation, anything that has specifically stood out for you in these numbers which have come in overnight, anything you find interesting?

So, many numbers came out, it is very tough to remember most of them. But I think the trend is very clear. So, we are seeing good numbers from construction, infrastructure, capital goods side companies. We are seeing muted numbers from consumer companies.

On the construction infrastructure side, ITD numbers, I did not see, but HCC and NCC numbers seem to be encouraging and the trend of the capital investment cycle and improved balance sheets continue for many of these players.

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So, I think that is where the theme is even now. So, consumption ultimately will come back. So, I think as the markets give some correction in these stocks, most of these stocks trend towards 52-week lows, they could give opportunities.

I remember on the budget day, we were talking about how you are turning quite constructive on consumption. I want to talk to you about Britannia and Nestle. How did you see the performance? Do you like any from these two names?

I think performance continues to be muted. Like the base consumption, consumer non-durables, the consumption has been muted. Even consumer durables has been muted with some companies here and they are doing better. So, performance of these companies in the context of the overall market was decent. Now, the question is about when the revival cycle plays out and what valuations you want to play. So, among the two, I would prefer Britannia given the valuation and possible long-term growth paradigm. So, I think we will wait for stock prices to settle.

If there is overall market correction, the under performance of the previous cycle tend to also correct and that could give opportunities because ultimately consumption cannot remain so low for two-three years when the overall economy is doing decently.

What about Bharti at 1100? Do you see value in that now that the tariff hike buzz is back, it is getting louder or you think at 800 to 1100, bulk of it is already in the price?

I would say some part of it is already in the price. Now, the price hikes, the tariff hikes have been muted relative to the fact that it is a virtual duopoly in the market now and the companies can actually do price hikes, tariff hikes which for some reason it does not happen because Jio does not seem to be too interested in making too much money and to that extent they do not support the tariff hike cycle.

I think these companies can easily hike tariffs. The tariffs in India are so low relative to global tariffs and I think raising tariffs is not so tough in the current market slowly, but whether the players agree to do that or not is the question mark. From these prices, return potential from Bharti, although we own Bharti since a long time, it seems to be muted in the near term. So, I would say single digit return expectation unless and until we see strong moves on the tariff side and then the targets could substantially change.

And I know we have discussed this at length already, but I still want to get a view from you again on Zomato as well as Paytm. For Zomato, post the earnings, has your view changed and for Paytm, any further recommendations for our viewers?

So, Zomato, my view changed a long time back, but I could never buy because when the time was there to buy, because the stock was continuously falling, so sometimes you get into that loop, you do not want to take that action because you are not sure what is going to happen and then among the new generation companies this was always the best place because it operates again in a virtual duopoly and increasing profitability at some stage had to be easy.

I think there is nothing wrong in the results, good guidance, so I do not think the stock will give immediate opportunities to buy. So, if it gives opportunities to buy on a decent correction at some stage, we could look at it. So, at this price, I would not be inclined to buy myself.

What do you do with the likes of Trent in that case? One would say that they have run up materially, but then they keep on delivering great results.

Trent is an amazing company. I think the numbers they delivered has been blowing out all analysts’ expectations for so long now because see the driver of stock prices in the stock market normally is how much you outperform vis-à-vis expectations and they have been doing it so hugely.

This quarter results just were so superb that I think that has generated then another round of re-rating. So, for people who own it, there is no reason to sell the stock. For people who want to enter, if the stock moves up so fast, I think entering at that point of time always runs the risk of a corrective move. So, I think that is the only risk in the near term, longer term I think they are doing very well, their strategy is so well in place.

What about SBI then? You have been tracking it for long, you have held it in your portfolio and now the real colours are coming out, almost 700. Are you reviewing it, trimming it?

Yes, so among the PSU stocks, I think that is the only stock I was inclined although many of the other PSU stocks have also run up rapidly. Now, the challenge is that the last couple of quarters we have seen pressure on the net interest income build up and from next year what is going to happen is that many of the PSU banks are not going to have the advantage of improvement in NPAs and balance sheet improvements to boost their profits.

So, it has to be from core earnings and core earnings could slow down substantially next year. So, the current run up and on the other side fall in private sector banks reduces the risk reward for SBI. So, I think at this point of time, it does not look so exciting.

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William Murphy

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