DIS Stock – porinju stocks: Porinju Veliyath finds this Tata stock underpriced
One of your biggest concentrated bet is centred around the Tata Group of companies, whether it is Tata Consumer Products or Tata Communications. What makes you bullish on Tata Communications? The stock has gone from the levels of Rs 400 to about Rs 1,300 in a year and you still continue to like it. Why is it that you do not like Tata Elxsi or TCS?
Two years ago, Tata Elxsi was our first stock after Tata Consumer. We recently exited it in the last couple of months. We started buying Tata Communications over a year ago at Rs 350-400. In fact, the stock went down to near Rs 200 level during that panic in the market. Now it has come up to four-digits and quoting at around Rs 35,000 crore market cap. In digital transformation theme, valuations of Tata Elxsi and others companies have gone through the roof. A good company does not mean you can buy it at any price. They can still be reasonably good compounders. After its recent concall, I find Tata Communications underpriced. I do not want investors to go and buy it in a hurry. It can go back to Rs 1,000 or below into three-digits. The market is not in that kind of a comfort zone.
I would strongly look at Tata Communications when we play the digital transformation theme. It is a huge global opportunity in digital solutions. It has traditionally been a company providing data and voice infrastructure and is getting transformed into a global solutions company. Now with the new leadership of Chandra and a new CEO and CFO, I have got more confidence on them. It is a Rs 2,500 crore free cash flow company today and we are talking about big growth ahead. The company has guided for 15-20% growth for the next few years.
What else are you looking at currently in terms of value plays or themes in the broader market?
I do not want to go back to my old style of talking on stocks – smallcaps and midcaps. Things have changed and even I have learned many lessons. When we pick small and midcaps, I am not making them public.
I remember clearly that before N Chandrasekaran took over the Tata Group of companies, they were being managed like PSU companies. There is a huge change happening, which is evident in the numbers, their attitude and in their vision for the future. Tata Consumer is up 200% in two years. And even Tata Chemicals has done very well. Tata companies have the capability and the brand when it comes to consumers. E-commerce is going to create significantly bigger wealth going forward. There is no doubt.
But stock picking is not going to be that easy. I am not very comfortable talking about smallcap stocks in our portfolio. It is true that we have created some of the best ideas in the last one year. Though markets may give corrections, and sometimes deep corrections, there are still very good opportunities for real value investing. We have to finetune the nuances and find ways to perform.
I am very bullish on the market. When the markets are very hot, a lot of new investors enter the market and buy stocks at any price, especially in the small and midcap segments. It is time to be careful and cautious. The market has been discounting FY22 numbers. The June quarter will not be good. We know that some of the companies may report very bad numbers. So the sentiment can change during this period.
It is very evident that this rally has a long way to go, but it is going to be a stock picker’s market. When there is a general trend, every stock goes up. It is the time to be extremely careful and cautious. Leveraged traders should be very careful because whatever money has been made in the last one-and-a-half year can also be lost very fast. It is time be cautious and strictly adhere to the principles of value investing.
Since you are not discussing individual names, can you give us a sense of your portfolio thematically?
Smart people used to avoid public sector companies in the last few years for reasons like management issues, etc. That theme has played out a bit. Many of the stocks have gone 2X and 3X. Some of them are yet to perform, but I expect a further rerating in public sector companies. I am very confident that in next 2-3 months, going by the government notification, BPCL sale is going to happen. Air India is also going to be disinvested. Rerating will happen after 2-3 large successful disinvestments. Look at the valuation gap between PSUs and non-PSUs. On one side, we have the Adanis and other stocks. What about NTPC? This time I am not holding or buying the stock.
BEML is also going to be disinvested. A lot of people still do not believe that government can successfully disinvest these companies and meet the target. I strongly feel that this time the disinvestment process or the privatisation process is going to be very successful. That will lead to a rerating of many PSU companies. There are many companies which are still quoting at cheap valuations. Investors should look at PSU companies seriously. It can be a theme to play for the next 1-3 years.
Besides BPCL and BEML, there is a long list of candidates waiting to be privatised. What else is on your radar in the PSU pack?
There are a few of them lined up for disinvestment. Let investors analyse which ones, like Shipping Corporation, are giving value at today’s market cap. Somehow these companies have a very huge land bank waiting to be monetised. In BEML’s case, they have already announced that a separate company will be formed to hold the extra land bank, which is beyond the operational land bank. That can be very big for companies like BHEL in case they get disinvested.
BPCL, of course, is a different thing. Look at the cash flow potential for BPCL, HPCL and IOCL. Everybody feels that since we are moving towards electric vehicles regime, why buy refining or distribution companies. Look at the next 10-20 years, this business is going to create huge cash flows for owners of the company and they are getting disinvested. If they go to some strong hands, globally or in India, everything can change and things will be much better managed. My confidence is very high on privatisation of PSU companies.
Is there any other theme you believe in for the long term?
All quality ideas have already run up much. But value picks are still available, so it is very difficult to generalise at this point of time. We have to be very selective in stock picking in the market.