What do you think about the Hyundai IPO? There was a steady response on the first day. But it lacks the zing or X factor that gets investors excited when it comes to prospects in listings. Do you agree?
Dipan Mehta: This is a good IPO to apply for and that’s how we advise and disclose, we ourselves will apply for the IPO. But you shouldn’t expect an amazing listing like you’ve seen with other IPOs. It might be a hotter list because of its size and because of the sentiment in the auto industry as well. Even post-listing, you may have a situation where two-three quarters may be quite weak because we see a temporary slowdown in car sales and that can impact the profitability of all car companies, Hyundai included.
Overall, it compares very well with Maruti. It may trade at a slight premium to Maruti as well due to its product profile and the type of distribution expansion opportunities available to the company as well as its superior EV strategy. So, if you are a long-term investor, a two-, three-, five-year view type and prefer consumer-oriented stocks, then Hyundai fits the criteria. However, it is for the long term and one should not expect quick money in the listing.
The move in Reliance was tempered by earnings. O2C businesses are not on fire. I guess that is quite reflective in the way the stock has been. It has breached several key levels and technically looks a bit weak at the moment.
Dipan Mehta: That’s right. It is a large company operating in a challenging environment. Scale also plays a role here. But there is no trigger for you to buy Reliance unless they decide how to unlock the business that is in Reliance Industries and can make a difference of 10-15% with the price because if you will it will be easy. The IPO where Reliance is the holding company is not very good for the minority shareholders and you can see further corrections.
And if they split the company, I’m pretty sure 10-15% increase can be expected. Management has postponed a decision on this aspect, on this strategy. But sooner or later, the phone must be picked up. As I said, there is no trigger to buy the company. Also, Retail and Reliance Jio have now reached scale and are gradually entering the maturity phase. I’m not sure, they will pay more at higher PE. So, the scope for re-rating has also been reduced a little.
With the rupee cutting at 84 to the greenback, what is your view on exporters?
Dipan Mehta: It is a mild depreciation of the Indian Rupee and exporters are struggling with the demand situation. Read what has come out of TCS and HCL Tech. The Street expects higher turnover, better demand, but not yet. In addition, due to the election pressure in the main US market and the overall slowdown in Europe and the rest of the world, exports have not increased in volume. So mild depreciation will reduce margins, and give you some flexibility to offer discounts. But the depreciation of the Indian rupee is not a trigger for buying export-oriented stocks. I want you to address what happened with Avenue Supermarts because of the structural challenges. The management has stated this fact and said that Q-Comm is eating into its business, at least in major metro cities. A lot of innovation is happening in fast trading. Blinkit last evening said they are now going to introduce easy return in 10 minutes also in some of the big metro.
Dipan Mehta: Yes, this is a very high innovation. And if Blinkit can succeed, then it’s good news for Zomato shareholders like us. But let’s see how it plays out. There are many execution problems in this kind of thing. Choice is also an issue. But while online sales at Avenue Supermarket, fast trade is increasing, especially from stores in urban areas, in metro cities and the trend will continue. Valuations are also still on the upper side.
So, I’m just going to avoid Avenue Supermarket for now and this happens in many industries where the slowdown can be structural, seasonal, or cyclical and that’s a challenge for equity investors because if earnings go down, then what? we want to support this high PE multiple?
