Don't buy Paytm now; reason for Yes Bank surge

Sudip Bandyopadhyay, Group Chairman, Inditrade Capital, says “the news of HDFC Bank getting RBI approval to buy more stake in Yes Bank and holding the stake was definitely a positive news. The other factor which distinguishes Yes Bank from many other smaller private banks is the technology. Historically, it has been very adept and advanced in terms of providing technology-related services to customers and merchants and that continues in spite of the debacle on the asset quality and the management changes, etc. The management by the SBI appointed person has been pretty good.”

It is kind of magical, the way Trent delivers quarter after quarter and the way the stock, even though it is just so stretched in terms of valuations, continues to hit sixers. Now as I see it, it is up 18%.

Sudip Bandyopadhyay: Absolutely right. They have been doing a lot of things right. The Zudio diversification which they carried out I think has paid handsome dividends. So, to be present in all segments, not only in the upper or upper middle class segment but to go down and take the fast fashion to the lowest level, is a commendable job they are doing and that is getting reflected in the numbers which are beating all estimates quarter on quarter. But having said that, the valuation at which level it is, I think is really a little scary honestly.

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At FY25, 90 times, I will be very-very scared to touch it. It is a great company. They are doing a great job. But I do not know. At this valuation, whether one should buy or not, honestly I cannot comment and I cannot…, with my conscience clear I cannot recommend anybody to buy this.

There is a PSU pack, oil and gas, which is relatively undervalued compared to others. Surely, it has gone higher than its own averages now, but people say that so much of capex is happening in energy. Would you bet on Engineers India because that company is an advisor on most of the PSU capex.

Sudip Bandyopadhyay: No, absolutely. Some of these PSU companies are really doing well. Particularly, the companies which are on the advisory side or the construction side, they are getting loads of orders and obviously these orders will get executed over a period of time and they will earn their revenue. We have to be just a little careful that receiving order does not translate into revenue in the immediate future.

It may take some time before the revenue flows in, so that is one point. The other point, as far as specifically for Engineers India is concerned, yes, absolutely this company is in a very good position. With all this activity going on in the public sector undertakings, construction, infrastructure, railway related infrastructure and a whole lot of other things including in the area of defence.

Engineers India has a role to play in many of these projects and they are getting consultancy and implementation advisory in a lot of these contracts and obviously the company is on a good wicket. So, yes, it can be looked at and, of course, the valuation has moved up quite a bit. But a company like Engineers India, if somebody is in for a long term, I think one can look at even at current level in spite of the rally.

Yes Bank has shot up almost 20% over and above yesterday’s 10%. The only recent trigger appears to be commentary from HDFC Group that they are keen to buy more of Yes Bank in their funds. Do you see value in Yes Bank? You have been in financial services so long, is the book all cleaned up ever since SBI took over?

Sudip Bandyopadhyay: Well, definitely the book has been cleaned up quite a lot. Very difficult to say whether it has been fully cleaned up or not, but from the published information it looks that a massive cleaning effort which was undertaken has yielded results. The performance has been improving. And amongst the smaller private sector banks, this is one definitely which seems attractive.

On a couple of factors, I will like to point out, one is obviously this news of HDFC Bank getting RBI approval to buy more stake in Yes Bank and holding the stake, that was definitely a positive news. The other factor which distinguishes Yes Bank from many other smaller private banks is the technology.

Historically, Yes Bank has been very adept and advanced in terms of use of technology, providing technology-related services to customers and merchants and that continues in spite of the debacle on the asset quality and the management changes, etc. The expertise and the advanced status as far as technology has been maintained and that is one thing which will take Yes Bank forward in a much better fashion. So, the management by the SBI appointed person has been pretty good and beyond that, the technology and other good parts of Yes Bank has been nurtured.

Your view on Paytm now? Do you think the worst is now priced in and now it is time to probably look at adding and averaging out your portfolio?

Sudip Bandyopadhyay: Not really. This is an extremely risky strategy. We are trying to catch a falling knife, as we say in market parlance, and it is always avoidable. As far as Paytm is concerned, the RBI direction has pretty much stopped the business of the payments bank. There is a whole lot of uncertainty.

There are some meetings happening, but how far if at all remedial actions are approved by the regulator is a big question mark. As things stand today, the customer confidence, partner confidence obviously for obvious reasons have eroded completely. There is a clamour amongst customers and partners to move out.

Naturally, because by 29 February they have to stop the services. So, it is a completely chaotic situation as far as Paytm is concerned. What value it will retain after 29th February, what kind of service it will be able to provide effectively, I think one needs to see. So, it is very premature to get excited by some meetings happening in and around with regulators or otherwise. We have to wait and watch what concrete steps get taken and how they can bring back the customers.

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