The big talking point is the 29% cooling from the recent spike in crude prices. It is down 13% in the last two trading sessions alone. Although $100 a barrel is still high, how do you approach crude sensitives? Should we start buying cars, paintings?
We saw significant earnings downgrades for auto and paint companies, the sectors hardest hit by rising crude prices. Tire companies and oil marketing companies have their own dynamics, because it depends a lot on the timing of the price increase and the magnitude of the price increase.
But other than that, we saw significant negative sentiment and downgrades for these sectors. The banking sector does not have a very direct correlation to crude, but given global markets and sentiment, there has been a fair amount of weakness. We see a case of rebalancing here where we will see further buying in bank names. Also, in the case of paint companies like Asian Paints, Berger Paints, Pidilite, tire companies, we also have positive news regarding PLI for some of the automotive companies.
It will also have a positive effect on names like Maruti, etc. Overall, some interest will return to these names and there will be a rebalancing at the portfolio level in which metals or crude beneficiaries will take some kind of a hit. down and these guys will have some kind of bump.
There is news of Zomato acquiring Blinkit in a stock deal. There are a lot of moving parts here. Does this increase short-term overhang on Zomato anyway?
For some of these start-ups, stock prices have fallen from their all-time highs and are down 30-40-50%. We get a stream of additional negative news. In Zomato’s case, we have this Blinkit news where the company is ramping up investment at a time when things aren’t looking so good for the entire startup space. Paytm also had negative news. These things are not going well and could provide some sort of negative tick for these companies.
Despite such a big shave, in the current environment people would prefer some well-known companies that have already corrected and we will have better opportunities. So we wouldn’t really want to go into some of these names even though they fixed a lot.
Jubilant Foodwork fell after CEO Pratik Pota resigned. Shouldn’t Jubilant Foodworks be bought just because it fell?
I could give another example. Even for Godrej Consumer, Mr. Sudhir Sitapati has taken over for the past six months or so and we have seen a positive reaction both in terms of share price and business performance. There are many interesting cases where there are both positive and negative impacts when new management arrives. There are a lot of positive expectations from the investment community and the operational performance of the company also reflects this.
With regard to Jubilant Foodwork in particular, we must bear in mind that over the last 15-18 months, due to the impact of Covid and the fact that the entire QSR space and in particular the names that had built a very strong online platform to deliver have actually benefited. Performance has been pretty good for Jubilant.
Our feeling is that QSR’s structural history is here to stay. If you look at many other companies in a similar space over the past two or three quarters, things are looking much better and with people going to malls and going out, we will see traction improving. We think this is going to be some sort of knee jerk reaction from the market due to the type of work Mr. Pota is doing but we don’t see this as a major negative development for the company and even otherwise the stock has corrected about 15-20%. We find this to be a very attractive entry point for Jubilant Foodworks for the type of business model and franchise distribution channel it enjoys. We continue to have a positive outlook there.
What are the prospects for cement? Recent brokerage notes believe that after a difficult third quarter, things are looking up as demand picks up and efficiency improves. Are the trends positive?
Cement as a space has been hit very hard by everything that’s happened over the past couple of quarters. So things commercially weren’t so good. The third quarter was not very good in terms of volume growth. They have not been able to accept a significant price increase and they are facing multiple headwinds in terms of petroleum coke, in terms of other raw materials related to crude, etc.
So from a price correction perspective, we see that the worst seems to be over for names like UltraTech and maybe some of the regional players, maybe Ramco Cement and Dalmia Bharat. But how long it will take to see the best numbers is unclear. We believe that for those with a 6-month, 12-month view, a 25-30% decline in cement stock prices is a good entry point. It remains to be seen how long we will have to wait for the actual numbers reflected in the quarterly updates.
What’s the story with Linde India? For the stock to reach an all-time high in the current market scenario, what is really going on behind this story?
We don’t cover it, but I understand it’s a very unique company that’s into industrial gases and with the themes of electric vehicles and hydrogen and green energy happening there. Globally, it is one of the few companies in the world that has hydrogen technology and is operational in many places.
They are at an advanced stage to deploy the fuel network. Globally, too, the company performed well. In India, there was a merger of Praxair and Linde which is in the final stage of regulatory approvals. The company’s performance has been extremely good mainly due to the kind of upside we’ve seen in the metal space and the floating stock is extremely low – just 13-14% as 75% is owned by developers and then there are some big HNI investors. So it’s a very unique business that some people might want to own in 2-3 years time and love green energy and so on. There is a lot of interest and yesterday’s volume was over 20 lakh. We need to see the delivery component, but this was a record delivery volume.