What is the best way to bet on consumption? Buy HUL, Nestle, Colgate or buy the new niche consumption categories, BPC or anything which has got to do with hospitality, religious tourism and spiritual tourism? What is the new category now?
Gurmeet Chadha: One has to be a little overweight on discretionary as Gen-Z is spending more and that makes up the bulk of the consumption. We are extremely constructive on hotels. We have been very lucky with Indian Hotels and Lemon Tree. We were very early there. InterGlobe is another one despite persistent selling by both the promoters, though obviously the Gangwal group has sold more. We have seen that despite too much supply, IndiGo has done well and will probably continue to gain more market share. There are issues in terms of supply of Boeing models but IndiGo is largely going for Airbus, so in near term, they will add more to the operating metrics.
We have to look at some more digital consumption themes. We have Eternal in our portfolio. We are looking at PB Fintech as well. And then, maybe tactically look at some of the FMCG names if some volume growth comes back. For example, HUL returns for five years are flat. Nestle has been flat for three years. ITC is weighed down by the BAT group selling, and is available at 14-15 times. So, in consumption, you can be 70% in travel, hospitality, discretionary names and 20-30% in very under-owned names in staples. One quarter you get 2-3-4% volume growth more and rural recovery is giving you a sign. Look at Marico. It had a very good update last quarter. Their food and hair oil segment in particular are doing better within staples. So, selectively maybe 20-30% there and about 70-75% in discretionary.
HDFC Bank is at Rs 2000. Which is the next big one?
Gurmeet Chadha: I am delighted with that Rs 2000 and I have been an investor since 2007. But purely on operating metrics, ICICI has surprisingly been a little more subdued compared to HDFC and Kotak. Obviously, HDFC and Kotak did not do much for almost three years. So, ICICI Bank will again have an industry leading performance both in terms of CASA deposits as well as the advances.
I like the way they have positioned their lending portfolio, the high yielding part which is loan against used cars, loan against property (LAP) and other products. They have a right mix of secured and unsecured with deals also moving up. They have done a beautiful thing in the last three years. There are no product-wise targets, no insurance targets, no card targets. A branch has to achieve unit profitability and amongst all private banks, ICICI now has the lowest attrition. HDFC and Kotak are struggling with 25-30-35% attrition at the branch level and the culture is very important.
Once the culture is right, banks then continue to deliver outstanding returns for a long period of time and at some point of time, banks need to introspect the focus they have on insurance and fee based products versus core banking. ICICI is getting that balance right. I also think SBI could unlock some value with more listings coming up.
For example, look at HDFC AMC, it is over Rs 1 lakh crore, at about Rs 8 lakh crore AUM. Now SBI MF, once it gets listed, is at Rs 12 lakh crore and the yields are identical, about 40 basis points, which means it could do like Rs 3,000 crore PAT. That could lead to some value unlocking. SBI General, SBI Capital Markets, if you add subsidiaries, give a little bit discount, even that probably could add 20-30% to SBI.
Secondly, despite posting very good numbers, SBI still does not get the rating multiple some of the private banks get. I am not saying it should get a three price to book, but the way it has turned around, it deserves a slightly better multiple than what it is right now, which is around 1.3 to 1.5 times. So that looks pretty good to me.
I would prefer them and I also like Federal because of the leadership change that has happened there with Mr Manian coming, who was a key pillar behind Kotak’s success in the last two decades. The only issue with Federal Bank is the culture. It is still a south-based bank trying to diversify. If Mr Manian is able to build and bring out that change there, Federal could be another mid-sized bank to look at.
