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00:00Hello and welcome to Talking Point. I'm your host Neeraj Shah. And the case for a chat today,
00:16aside of all the macro conversation around rates and what it could do to multiples and elections,
00:21is this. Will management commentary about what could happen in the quarters ahead
00:28be a bit of an antidote to the slightly iffy fortunes of the FMCG companies and the consumer
00:34companies, at least the staples? Will ER&D as a space outperform IT services in FY25?
00:42It has done that very admirably in FY24 thus far. Is more steam lift in energy companies? Remember,
00:49we did this piece today on Editor's Cut where we spoke about the biggest wealth creators
00:54from COVID lows until March 31st or until yesterday, if you will. And energy as a pocket
01:00stood out as a key wealth creator. I think the macro and the micro, we talk about both with our
01:06guest today, Shiv Puri, founder and managing director of TVF Capital Advisors, joins us all
01:10the way from Singapore. Shiv, always good talking to you, no less today. Thanks so much for taking
01:14the time out. I hope all is well. Yes, all is well. Nice to be here, Neeraj.
01:19Thanks, Shiv. So Shiv, just a quick word on the macros. There are a lot of factors
01:23impacting the macros, geopolitics, rate cuts, in India's case, elections.
01:29What is it to your mind that holds the biggest sway between now and the end of the year?
01:36I think the biggest sway is going to be the direction of interest rates. And you've seen
01:44that historically, when inflation spikes, it takes a very long time for it to settle. And
01:51that's proven to be the case this time as well. And as a result, when people expected a lot of
01:59rate cuts this year, up to four rate cuts were priced in the US this year, and now that's down
02:03to perhaps one or none. And so the direction of interest rates is going to have a crucial factor
02:10on what happens in the US economy, and also the direction that the Reserve Bank can take in terms
02:17of its rate cutting strategy. So I think that direction of interest rates would be the crucial
02:23factor for this year. With regards to geopolitics, those issues have been around for a while,
02:29and I think the market has taken that in its, and it has accounted for it. In terms of elections,
02:37I think most investors and followers in India are assuming the outcome to have no surprises. So I
02:45don't think there'd be anything new that would happen in that. Some chatter around if it does,
02:50if it's not really char so par, but if it's lower, let's say if it's closer to 300, is that a
02:55disappointment for the markets? I'm just trying to think, Shiv. The markets, if the markets want
02:59political continuity, they get the political continuity at 275 as well. Would it be a
03:04disappointment indeed if the number is not very high, but if it is policy incumbency?
03:12Well, as long as there is a majority that's expected, I think any disappointment would
03:18be very short-lived, because structurally people will realize that the direction would be
03:24unchanged, and there is stability. Okay, fair call. Thanks for that. Now, Shiv,
03:30just wondering, what have you done with the India exposure currently? I mean,
03:34have you remained totally invested all through the volatility of the last
03:40couple of or two or three months? And have there been weighted changes,
03:45even if you would have been fully invested between themes and between stocks?
03:51Yeah, I think the long-term structural story of India remains unchanged, and it's been unchanged
03:58for the last couple of decades, actually. It's gone through spins, but the direction is clear.
04:04And with all that we've seen happen in the last decade, I think the next decade is also going to
04:09remain unchanged. I mean, I think one of the things that we realize now in the economy,
04:15many people are seeing this, is the compounded benefit of all the reforms that have happened,
04:20and how certain sectors are benefiting hugely from it. So all of these reforms that happen,
04:26whether you talk about GST, whether you talk about the bankruptcy bill, whether you talk about
04:30the real estate regulatory reform, etc., were piecemeal reforms that happened that caused some
04:35sort of disruption and pain to adjust to. But now that they're all sort of well understood,
04:40well in the machinery, the compounded benefits of things like that, including digitalization
04:47of the Indian economy, payments, etc., all of the benefits that are started to compound
04:54in the years ahead. And I think the benefits of that will come on. So I think macro-wise,
05:00things are looking very solid. Near-term fluctuations will happen.
05:06Areas like banking, areas like healthcare, especially hospitals, certain pockets of FMCG,
05:13or I should say consumption, not FMCG, continue to look very, very interesting structurally.
05:20Okay. And we're going to talk about this in detail in a bit as well. But Shiv, we were
05:26doing this morning, taking a leaf from an IFL note, looking at the wealth creation that has
05:32happened since COVID lows, and a much more widespread journey. I mean, the number of
05:40stocks which have really gained from 5x to maybe 100x, that number has been very wide. It is not
05:47concentrated in the quality names. It's been across sectors as well. Maybe energy stood out,
05:52maybe economy-facing sectors stood out. It was quite unthinkable back then during COVID lows
05:57that anything but tech and quality will do well, and certainly some of them have. I'd love to
06:01understand from the economy-facing things, and I want to start off that topic in this segment.
06:06We'll come to consumers in the second segment of this conversation. From the economy-facing space,
06:11Shiv, how constructive are you there? Is the portfolio tilted towards domestic economy-facing
06:18companies, or are you still not quite there? And what within that bucket do you like the most?
06:25Yeah, so I think your first point, you're absolutely right. The Indian equity markets
06:29behave quite differently than the US equity market, where the returns have largely been
06:34driven by the big tech stocks. It's much more broad-based in the Indian equity market,
06:39and that's healthy. And it's not surprising, given that the growth has been fairly widespread
06:46across sectors. I think the interesting investment areas in India have always
06:52centered around the domestic economy, whether it's consumption, whether it's infrastructure,
06:58whether it's financials, all catering to the growth that's there in the domestic economy.
07:04So I think that remains unchanged. And yeah, I just highlighted some of the areas that I thought
07:11remain interesting, have been interesting, and likely to do so.
07:16Okay. The argument being made by some people, Shiv, is that, let's say, for example, capital
07:22goods, which will be beneficiaries of a CAPEX cycle, which is underway from the PS government
07:28side and maybe from the private side soon, are great beneficiaries. But some of the
07:34high-quality names out there are priced to perfection or beyond perfection. I mean,
07:38the ABBs, the Cummins, et cetera, of the world might see selective upgrades or downgrades,
07:43but largely the belief is that they are well-priced. And therefore, the money-making
07:49opportunity remains not necessarily in the high-quality names, but in some of the others
07:54which will benefit because of a valuation re-rating. How do you think about this argument?
08:00I think one has to be very careful with an argument like that, because, see, some of these
08:03high-quality names that you've mentioned that have re-rated have also had a change in their
08:08business model, right? Some of them have become much more services-oriented than low-end
08:13manufacturing. And it's reflected in the return on equity, the return on capital ratios that you
08:18see for some of those companies. So for that reason, along with the growth table, some of
08:22them would command a higher multiple than perhaps in the past. You know, I think the
08:29important thing in capital goods is that all revenue and all earnings are not equal.
08:34There are certain companies that will benefit because you have a tailwind,
08:38but are very competitive market spaces. Capacity will come online, margins will get squeezed,
08:46and the earnings trajectory, which is being straight-lined into the future and a very high
08:51multiple that's being put on that, might actually see the opposite happen over there. So one has to
08:57be very careful in terms of extrapolating, simply looking at the PE ratios and look underneath and
09:06see what's the durability of that growth, what is a barrier to entry, what's the model, you know,
09:14in terms of return on capital metrics, and just the usual things that one would look at across
09:19the board to make a decision on that. So I think infrastructure, even in past cycles,
09:26capital goods in past cycles, has been very cyclical at the low end. And so again, to be
09:31sure, one has to be careful not applying a multiple to high earnings, a high multiple to high earnings,
09:37because that can set up for disappointment. Okay, that's a fair call. Some of the economy
09:45spend-linked sectors, Shiv, have gotten formed only in the recent past, right? And some of the
09:50PLI beneficiaries, new energy, all of that, people are still wrapping their heads around
09:57at least the new energy, green hydrogen, whole ecosystem, data centers, etc. are maybe a bit more
10:02mainstream now, but they were also new about maybe a couple of years ago. From within railways, for
10:08example, or the resurgence of defense, if you will, from within all of these that have just come in,
10:12and I know you look at it from a different lens, sitting out there where you are,
10:18I'm just trying to understand, what is appealed to somebody like you from this thing? Yeah, there are
10:25certain segments in infrastructure and capital goods where the demand cycle looks to be very
10:34structural for a long period of time. And you mentioned railways, that's certainly one area
10:40that it looks like it's going to happen. And then, so therefore, supplying into components
10:46that supply into some of those markets would be very interesting. But again, one has to see that
10:52nobody's sort of looking at the commoditized aspect of companies that supply into that region.
11:01I think one other point to keep in mind is when we talk about, say, green energy, etc.,
11:06sometimes these are very good for the overall economy in terms of promoting growth,
11:13lowering the cost of power, working well with the environment, etc. But by themselves, they may or
11:20may not make great businesses. We see that in payments, for example. Digital payments is a great
11:25lubrication for the financial services industry. I think it's done a lot of good
11:31in India and in help promoting businesses. But it's not necessarily maybe the great way to sort
11:38of create wealth. It's a very difficult business to make margins and to make money. So again,
11:46I would say there are certain areas within capital goods that are very interesting.
11:51Several areas great for the economy may not necessarily be great as investment teams.
11:56Okay. Before we take that break, Dushyav, something that has found newfound resurgence,
12:01you would have taken note of the Vodafone FPO and the resultant RARA moves in telcos. I would love
12:08to think how are you thinking about this? It's a sector that has been in news all the last few years.
12:16Is this time different?
12:17For the longest time, there was a player in the market that had very aggressively acquired a lot
12:27of customers. ARPU levels were low compared to the services that were being offered. It was a great
12:34benefit to the Indian consumers. And I think as that stabilizes, it becomes quite clear. It's
12:38effectively a two and a quarter pillar sector. And I think it's a good thing that there's a
12:44quite clear, it's effectively a two and a quarter player market. And I think maybe some of the bets
12:51that are being made on the quarter play on Vodafone is that maybe it'll become a two and a
12:55half player market or a two and three fourths player market. I think time will tell because
13:00this is a business that is very capital intensive as well. Barriers to entry are very high. Scale
13:06matters. And the top two players in the country effectively have a vast majority of the subscriber
13:12base already locked up. So I think it's up in the air to see whether the quarter player can
13:21become a half player or not. Would you bet on it?
13:29No, I think it's very difficult. Again, I don't know what happens from a short term perspective
13:36because that particular company's stock has fallen a lot. So again, no idea on what that's
13:43going to do. But fundamentally, given the construct, if somebody has a more structural view,
13:51it's a very difficult bet to make.
13:54Okay. Well, we'll try and talk about structural stories. Shiv Puri is talking about consumption.
13:58And I think what we'll do is we'll try and talk about that in detail. Remember, the first of the
14:02FMCG numbers came out yesterday in Tata Consumer. Some more up this week as well. We'll try and
14:07focus a bit on that and how does Shiv think about that consumption space, both staples
14:11as well as premiumization. Stay tuned. We'll be right back.
14:14Back with Talking Point right here on NDTV Profit in conversation with Shiv Puri. Now, before we go to him, let's get in a word on one of the key losers today. Tata Consumer
14:43came up with quarter four numbers yesterday, of course, post market hours. And while the top line
14:48growth in PAT numbers missed street estimates, the margins expanded a little bit. Mahima,
14:53my colleague joins in to share some perspective on the quarter. Mahima, good morning.
14:57Good morning, Neeraj. So as you rightly mentioned that the revenues in PAT have missed estimates.
15:01However, margins have shown some kind of improvement. Now, a couple of reasons why the
15:05stock is under pressure. The major thing is that the volumes did not grow as much as they were
15:10expected. The beverage business grew only by three percent in terms of volumes, which usually
15:15grows around eight to nine percent. And overall, also like for like volume growth was only around
15:19four percent. Now, PAT has beaten street estimates. Now, this is only because of a one off exceptional
15:24loss of around 216 crores, which was majorly related to the cost of acquisitions that they've
15:30recently made. Now, in terms of the international business, the international business recorded a
15:35good growth of around seven percent in terms of the premium segment. They account for two thirds
15:41of the revenue. So it's something that their growth business has performed well. And in terms
15:46of their branded overseas business is something that is, you know, taken the EBITDA margins upwards.
15:53EBITDA margins is also done well because of the non branded coffee business margins. And in terms
15:59of I mean, despite of all of this, the board has recommended a dividend of around seven point
16:04seven five per share. So this is the overall view of what you can make out from the results of Tata
16:10consumers. Brokerage is sanguine mahima very quickly. Absolutely. So a mixed view in terms
16:15of brokerage is also something like Nuwama is extremely bullish on, you know, Tata consumers.
16:21They're saying that, you know, their innovation business and something that, you know, the product
16:26innovation that they're into is something that is driving the stock and which will, you know,
16:31further add growth to the company. So mixed views in brokerages. But Nuwama is something
16:35that is really bullish with a target price of around fourteen hundred per share.
16:38Yeah. Thanks Mahima for that. Some of the others not too sanguine. Shiv, you know,
16:44a Tata consumer or an HUL or a Nestle, all of which come out with numbers. You spoke a little
16:50bit about consumption. I'm divvying it up into two staples and then the premium consumption players.
16:55In staples, is there a case being built for a slightly better FI25? One, FI24, the base
17:04will hopefully help growth numbers in FI25. And two, the valuations,
17:09though not very cheap, but have corrected from the peak of October 2021.
17:15Yeah, I think, you know, what we're seeing in the last couple of years is this sort of two step
17:22consumer economy. You're seeing an aspirational consumer economy on the one hand, and then you're
17:27seeing the regular consumption economy on the other hand. And the aspirational side, you're
17:32seeing very strong growth, whether it's premiumization, whether it's spending on discretionary
17:39items, whether it's travel related. So discretionary services, all of that has been very strong.
17:48And the regular consumption side, I think, is still going through a challenging environment,
17:54primarily because of the inflationary impact that consumers have felt post COVID. So real incomes,
18:03you know, at that level, have not kept up with the pace of price increases that we see many of these
18:12companies do regularly. And they have to increase prices just given what's happened to their raw
18:17material costs. And so volumes naturally are not moving in as they used to in the past.
18:25I think this still continues for a little while, because we still are seeing demand at that level,
18:32whether it's urban or rural, be quite slow. And the real incomes have to first move higher
18:39before consumption of goods in that level can move higher.
18:47Okay. The premium end of the market shift, some great gains, right, for businesses like Ethos,
18:57Landmark, a clutch of others, which are all centered towards the urban upper crust
19:04consumption. Some of the retail places, well, doing so well. Has that slice run its course?
19:11Or do you think it's a multi-year theme and can last? And if so, within those sub buckets,
19:16what are your favorites? I mean, could it be a watchmaker? Could it be a car dealer? Could it be
19:20a retailer? Could it be something else? Or a jewellery company for that matter? Whatever.
19:26I think the opportunity that you describe here is multi-decadal. Because what we're
19:31talking about urbanization may not just be the top eight, 10 cities, but another 25, 30,
19:3640 cities that are in the pipeline, which are also getting urbanized very fast, where the
19:41penetration levels are much, much lower. And so whether you talk about whether it's in the
19:45jewellery business or retail, I think it's really important to understand whether the business is
19:52the right structured correctly. It has the right model. It has scale. It has differentiation.
19:58It has proper sourcing. And it's basically got the fundamentals of a sound model.
20:03But the opportunity set, I think, is multi-decadal in that space.
20:08Shiv, what is the largest overweight currently in the Indian landscape? Where is it
20:13you have the largest overweight from a theme perspective?
20:17Well, at this point, in terms of themes, I think financials is an area where there is
20:22a quite a lot of focus. And I think if you look at some of the private sector financials that
20:31haven't done well over the last few years relative to the rest of the market, have gone pretty
20:36attractively priced. And I think that the growth numbers have been reasonable. Liquidity undoubtedly
20:44is tight. But I think what's going to happen going forward, even with a slight pickup in
20:50asset quality in terms of NPAs, you will see a softening of rates over time and demand will
20:58continue to remain strong. Plus, they're very attractively valued.
21:03So banks, you're looking at private banks?
21:07Could be private banks, private financial services, NBFCs.
21:13Okay. Okay. Okay. And not PSU banks?
21:17So historically, not much is done in the PSU sector. So that's been something.
21:27There has been a pretty sharp rating in the PSU banks, as we would have seen. I will say this,
21:33though, I've been quite impressed seeing some of the changes that the larger PSU banks have made,
21:40both in terms of management quality, as well as the development in technology,
21:48which they used to be fairly behind. Very impressive what's been happening in the PSU
21:52bank at a fundamental level. But I think a lot of the re-rating seems to have happened.
21:59Okay. Final question, Shiv.
22:02The debate around valuations for Indian markets is a perennial one. I mean, I've not had a year
22:08wherein people haven't spoken about the markets being expensive, save for maybe during the COVID
22:13times, even then, it used to be the case. I'm just trying to think about, how do you think about this
22:20when you're making an investment decision?
22:21Well, when I started looking at markets here in 2004, I remember in 2003, when I was in the US,
22:29at that time, the prevailing consensus was the Indian markets are too expensive. And you're
22:36actually right, 20 years later, it's still the theme. And I think it's important to understand
22:42that duration of growth matters. And that's what the last 20 years have been about. And
22:47duration of growth matters. And that's what the last 20 years have shown. If there's a company or
22:53a country where the duration of growth can be pretty long, multiples will actually remain
22:58higher as they should. So, I think that is something that is going to happen. Now, in
23:03certain pockets, it is maybe irrationally high. You're certainly seeing that happen in some of
23:10the mid and the small gaps where the quality of earnings in some of those companies may not be
23:16deserving of the multiples that they are getting. And that may be a function of a lot of
23:21retail capital or whatever it may be. But by and large, if you look at the well-run companies, the
23:27larger cap companies, some of them may be at the higher end of the range, but many of them
23:32still are in the zone of valuation that they have historically been for the last two decades.
23:39And so, the real question is, will growth sustain? And we feel it will.
23:46Okay. Growth will sustain and that should help, but the duration of the growth being a very
23:52important part as well. And if that continues to be high, which if the market believes that
23:56continues to be high, then the valuation multiples may well catch up. That's the perspective from
24:01Shiv Puri. Shiv, great having you as always. Thanks for taking the time out and have a great remainder
24:05of the day. Great. Thank you for having me. The pleasure was ours. And viewers, thanks for tuning
24:09in to this edition of The Talking Point.