Four days on the trot now, the midcap space seems to have stabilised. Do you think worst of the storm has come and gone?
Some of the midcaps got corrected more than what was warranted and the midcap universe is very broad. Some of them have characteristics of largecaps and they are doing pretty well. But they got painted by the same brush and all of them corrected.
Even today, there are lots of stocks which are languishing for probably right reasons but good stocks in the midcap universe have recovered over the last four days and that was warranted. Now a couple of things here. Domestic factors are favouring the market, and the corporate results have been pretty good and in some cases, better than expectations.
Take the case of cement. It was much better than expected. The market is cheering that up. Also, the monsoons have been pretty decent till now. We have to keep in mind that the global headwinds are not over yet. The trade related issues are still looming large in the horizon and we have to be careful.
While we have shown a smart recovery, I would not say that we are completely out of the woods and market will be unidirectional positive from here on.
Jubilant Foodworks same-store sales is a very basic benchmark for judging growth of a QSR business. It is up 25% and yet market is not very happy with it?
The market was probably expecting better same-store sales. Remember this was a very exciting quarter for Jubilant Foodworks with IPL as well as the World Cup and they extended delivery time till 3 am in Mumbai at least.
This quarter was supposed to be a bumper quarter in terms of same-store sales. 25% is okay but nothing extraordinary. If it was a standard quarter, 25% would have been great. Also remember the valuation and the price at which the stock was quoting was elevated. So, some amount of profit taking is probably happening. I do not think the market will react very badly. Eventually, it will come back but some profit taking was warranted.
Would you be a buyer in any of the consumer names? If yes, which one?
We are definitely buyers in some of the durable stocks. Vipul is one of the biggest beneficiaries of the GST cut affected by the government towards the end of last week. They are in all the segments which will benefit from the GST cut. We are also bullish on Voltas. It is a great unfolding story on air conditioners side. They were pretty strong in northern India but are also gaining momentum in Gujarat and eastern India markets.
Also, the inverter AC is doing pretty well. Margins are good. Rural electrification is a priority of the government. That will benefit Voltas and their room AC segment in a significant way. The valuation still looks attractive and so we are pretty bullish on Voltas. We have a target of about Rs 700 there.
What is the broad expectation from Hero MotorCorp and where do you think is this entire pricing war is headed? Should investors be looking at this downtime for two-wheelers as a buying opportunity?
Absolutely. I completely agree with the thesis that this will be an excellent buying opportunity for long-term investors as far as Bajaj Auto and Hero MotorCorp is concerned.
About 14% growth is expected in Hero MotorCorp. The numbers in the last three months during April, May and June were pretty good. Also, remember the forthcoming season will see rural income going up, it being an election year and also the monsoon being good. Hero MotorCorp has the largest presence in rural India. They are in for better times going forward.
New launches will be important but as far as the pricing strategy is concerned, they have not brought down the prices or gone into any kind of discounting mode yet. They have been standing there. Also, Hero MotorCorp faced significant competition not from Bajaj, but from Honda. Even at that point of time, they had not cut back the prices significantly. Hero probably has a strategy which is probably different from giving discounts and significant cuts. We will have to watch it. As far as this current quarters performance is concerned, we expect about 20 bps cost pressure.
Margins may come down slightly but overall, it is a great opportunity to buy. It is probably the cheapest two-wheeler stock available, quoting about 12 times and it is much lower compared to its historical levels which is about 15-16 times.