If you missed BPCL, play disinvestment theme with HPCL, IOC: Dipan Mehta
Government testing waters with BPCL; there could be many more divestment candidates
BPCL, SCI, Concor are good businesses if they are sold at the right price, by the right methodology and will give market a lot of boost. Structurally if the right process is followed, it can have very long-term implications. Do you agree?
Absolutely. Reform is a big buzzword. It excites everyone, especially the foreign institutional investors and we have seen that their flows have turned positive last month or so. It also tries to capture the imagination of the market men and gives them a very feel-good factor. Sentiment is everything in this business. I think that it is a great move and they are testing waters with BPCL. It is one big serious disinvestment action and if the political backlash is not as bad as they feared, then it will pave the way for many more disinvestment candidates and that is going to completely change the entire economic landscape.
PSUs are a large percentage of the economic output but they are just not being managed well, especially not on purely capitalistic principles. One can unlock a lot of value over there and it has got a lot of implications and positives down the line for many other sectors. It has a salutary effect on the economy and on many other sectors.
It is a great move and the entire story is now shifting away from relief for auto and corporate tax reductions to privatisation which is a very good move forward.
The market seems to be taking Zee announcement positively given the management will still be in charge. What are you making of it?
It is a very good move and clearly the uncertainty around promoter pledge will disappear. Now we can all start focussing on the fundamentals of Zee which are fabulous. ZEE5 has done exceptionally well and it could be a real growth engine and value creator for the company as a whole.
The best thing in Zee is that valuations are quite attractive. It is trading at around its historically low PE multiple and it is a great business in a country like India. Although advertising is a little soft, they have got the subscription part really well over there.
The last TRAI order which have come through the subscription now is really the growth engine and those revenues are far more sticky than the advertising revenues. Ad revenues are subdued because of overall economic activity being low but it is cyclical and one year down the line, if the economy improves, subscription holds up and ZEE5 does well, you will have Zee firing on all three engines. You could have very good returns from this price point, may be even 25-35% returns over the next 12 months. There is no overhang of liquidity coming in the market from the pledged shares.
The fact that promoters will have 5% stake is unfortunate but true. Does it make sense for promoters to commit time, energy, passion to run Zee the way they have run in the past?
A company like Zee can attract the best of talent and if they feel the management is not doing due justice because they have only 5%, then the board is independent and they can certainly look at managerial changes. It is not cast in stone that the same management has to run Zee for the next 20 years or so. It is an evolving situation and I do not think that is much of a concern.
Bharti Airtel can survive the AGR issue and can go from strength to strength. But from an investment perspective, the stock has already moved up the way it has and I would like to buy it at a correction.
Actually the management intent is there to run the company. They could have sold it to a strategic investor, they could have sold it and got out of it completely but the kind of investors they have chosen are the type who will let the management run the company. So, it is their intent to run the company and they have gone on record to say that they are keen to go ahead and increase their stake as and when the opportunity arises.
Let us give them a chance, they have built a good company, a good track record, all the other businesses of Zee also have done pretty well. It is just that the unlisted businesses which the promoters were investing have gone sour, because of which they have really honoured their commitment to the lenders and given away a large part of their stake. I am not too worried about that count. Zee could be a good outperformer going forward and the focus would be back on the fundamentals rather than management intent.
What is your view on telecom? There’s the big relief coming in on the spectrum payment - a two-year moratorium has been given by the finance minister. Do you think that will act as a near term relief or would the niggling worry on AGR issue continue? Also, how stressed are their balance sheets in general?
The worst is over for telecom and I do not know whether Vodafone will really turn out to be a winner or not, but at least Bharti Airtel can survive the AGR issue and can go from strength to strength. But from an investment perspective, the stock has already moved up the way it has and I would like to buy it at a correction.
Right now telecom is in the thick of things. There is a lot of news flow. You will have a quiet period, you may easily have 5-10% correction from these as the news is already out. Market sells off on news and buys on rumour. The news is out you could see maybe a 5-10% correction at some point. And that is the entry point. Right now, there is too much froth in trading positions in telecom but at some point, it will settle down and one needs to now look at telecom more seriously. Many portfolios do not have telecom as part of their core holdings and now may be that may change going forward.
The difference in the future BPCL is no government and IOC and HPCL is only government. Is there scope for only government companies to go higher? One thing I have observed is just because the good company is expensive, does not make their number to company attractive?
You are right but the opportunity gap is there. You could have a trading bounce in HP, IOC as well. Those businesses are doing pretty well in terms of what they can unlock in terms of value and growth trajectory and this is more for people who have missed out on BPCL. If you bought BPCL at Rs 200 lower, then you can sit pretty but if you want to still play the disinvestment theme, then these are the choices for you.
The fears of reversal in the balance sheet of YES Bank and some other banks and mutual funds have been dismissed. RBI takes over DHFL, the stock will go higher but please do not buy the stock. Why does that stock trade I do not know’. Today the stock will circuit up but there is nothing left in the company!
It is more an opportunity for the NBFCs and the banks who have lent to DHFL and almost all the large banks -- IndusInd, YES Bank and some of the NBFCs have lent to DHFL. It will provide a relief for them.
But the money does not come back. How will the process work now?
Even I am not clear on that. I am not certainly not an expert on bankruptcy code but the point I want to make is that when we are analysing an IndusInd Bank or a YES Bank or some of the other private sector banks who have lent to DHFL, the real problem is crystallising what the actual exposure is and how much they need to provide and how much will be the loss that they have to take on their books. This is speeding up the process and to an extent reduces the uncertainty. If I know what I am going to get back or what I need to provide, then that is over and done with and you can move on beyond that.