Reliance: “Not too many options, people need to seriously allocate to Reliance”
is more of a platform company now, but when it comes to telecommunications, it’s safer to stay on Reliance. Now, check after check is coming to Reliance Retail as well. Does this strengthen the holding company?
Absoutely. For the majority of investors, their weight in terms of Reliance in the portfolio is absolutely critical given the huge outperformance of the largest market-capitalization company. Whether you believe the Reliance Retail story or not, the fact is given the kind of outperformance that Reliance has shown over the past six months and the kind of noise we’re hearing and the positive news in terms of new arrivals. investors, people are not left with too many options but must have a serious allocation to Reliance.
In terms of data points, the Jio part is very well supported. We have to see how the retail part is evolving in terms of structure and real numbers but we continue to have a positive view of Reliance, even the dominant position it occupies in terms of market capitalization.
Why is ITC being punished? Is it only because they are in the tobacco business?
People are a little surprised that despite having a great heritage and a very interesting and attractive valuation, why is ITC underperforming. The obvious reason for this is that 80% of their EBITDA comes from cigarettes, where things don’t look so good – whether it’s volume growth, whether it’s the overall long-term story. How the government goes about raising GST rates on cigarettes could be another kind of negative development for them.
The other aspect is that the non-cigarette sector has seen good growth in turnover and the size that ITC has been able to reach. But the problem is, EBITDA and margins have been much lower than many comparable companies in the FMCG space. So until you see a slight increase in that part of the business and if the cigarette business doesn’t give you that kind of growth visibility, then what can you bank on? He has some interesting businesses. We continue to believe that rather than trying to buy on a valuation parameter, it is better to enter companies that are currently showing visibility and momentum for growth. Globally, this is the narrative and the trend and we will continue to focus on these companies. ITC does not fit into this theme at the moment.
Like Bharti, most analysts are also positive. But there continues to be this moratorium overhang and impending NPAs. Has ICICI Bank been quite underperforming?
The entire pack has been underperforming for the past three months as there is a feeling you might have an extended period of slower growth and uncertainty on the asset quality front. But as we move into the unlocking season where sectors are posting positive data points and management feedback turns positive, those worries will fade away.
Some of these corporate lenders should attract good buying interest, as most of these negative things are pretty much known. Companies like ICICI Bank, HDFC Bank and some of the bigger NBFCs are the ones people would really want to participate in as we are seeing more positive news coming out in terms of numbers.