You are not a fan of insurance plays, are you?
Sandip Sabharwal: Not so much because the performance of these companies has been very volatile and the growth which was expected out of most of these companies has not actually played out both in terms of the parameters which most analysts measure to ascribe value as well as the profitability growth. So, insurance has been a sector which was supposed to be sunrise and supposed to do very well, but the delivery is not as great. So, typically, I am not looking at this sector at this point of time.
Also, help us with your take on Bata India because the stock has been hammered in the trade for quite some time now and especially post the earnings which was indeed a dismal set and in the latest some media reports suggest that CEO, Sandeep Kataria, resigns after five years. So, the official communication is still awaited, but just on this news flow if you have any take and also on the valuations because the stock is already near to its 52-week low. Give us some sense that how do you see Bata India?
Sandip Sabharwal: First of all, the global CEO has resigned, the India CEO has not resigned, so that is something we need to be cognisant of. So, there is no direct impact on Indian operations at this point of time. Secondly, as far as performance goes, the performance has been significantly languishing. The entire footwear segment has been going through a deep slowdown for the last three years which is reflected not only in the performance of Bata, but other companies which are listed on the footwear space. And there is a belief that many D2C brands, etc, are taking away market share that is why these companies are not growing, but if we track the raw material suppliers to these companies also, that also reflects that the slowdown is for real.
Now, this is also in a way reflective of what is happening in the overall consumer sector. But on the footwear side, it has been more drastic. There should be some consumer revival this year because of lower inflation, lower interest rates, lower tax rates, etc, and how that percolates down to the overall consumer sector and the footwear sector will determine how the stock will go. You rightly said that it is near 52-week low, so most of the negatives seem to be in the price. But whether volume growth and value growth will come back that will determine how the stock will do, otherwise it will continue to be in a range.
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What is your take on whether now Reliance can finally be the counter wherein you can see some big announcements coming in in terms of where they will deploy this Rs 2200 odd crore from the stake sale of Asian Paints pouring in.
Sandip Sabharwal: I think this sale also is likely to be that of Reliance which was left off last week. Now they do not get 2200 crores, they get overall I think around 10,000 odd crores and they have huge debt so they can just use it to repay the debt. And in terms of news flow, we do not really need more news flow coming out of Reliance, we actually need them to deliver on the new investments and profitability from those investments and generate some cash flows. So, if they do that, then we will see another rerating cycle. In any case, the stock has done well lately and should do well because we should see a good earning cycle over the next two years. How much the new ventures will deliver in terms of profitability will determine how much better the stock can do. You had a knee-jerk reaction I guess or call it the overall market weakness on Friday when InterGlobe aviation fell about 5% at the session lows, recovered a little bit, was still down about 3.5% on lows, perhaps a reaction to that very unfortunate Air India incident. But do you sense A) that there could be a further decline in the stock and if there should be a further decline, should it be bought?
Sandip Sabharwal: In the near term, there is a possibility there could be a further decline because some of the western aircraft routes remain disruptive, so that could impact some aviation traffic. Some aviation traffic from international passengers could also get disrupted because of the various conflicts which are going on. But it is a very strong company with a base which is unlikely to be disruptive. So, such corrections will only give opportunities to long-term investors to buy. The extent of the correction and how long it lasts will depend on how long the entire conflict, etc, lasts. But overall, next 8-10 days we should see some settling down and to that extent that give opportunities in InterGlobe Aviation also.
