Choksey further says that consumer finance companies with larger AUM could grow by 15% in the next two to three years. Bajaj Finance is expected to grow even faster. Valuations are reasonable, presenting a buying opportunity in the market.
What is your take on the cement pack because UltraTech came out with a decent set of numbers, but the management commentary is really good where they have guided for a double-digit volume growth in FY26 and a lot of these brokerages have actually gone ahead and raised the target price. What is your take on the earnings for UltraTech Cement? How do you look at the management commentary and do you believe that this can bode well for some of the other cement counters as well today?
Deven Choksey: Spot on. Cement companies definitely look interesting on two counts. One, the volume-led growth, capacity utilisations included, is expected to be higher in the current financial year. There are a couple of reasons. Of course, the construction activity continues and that gives strength. More importantly, the fuel cost is basically remaining lower. It is the energy segment within the commodity space and that is expected to produce even better results largely because on one hand, we have got volume growth and on the other hand, there is profitability growth. Both of them together give the advantage to many of the cement companies to register better profit performance in the current financial year.
UltraTech is the largest, ACC and Ambuja would be the next one to follow. I guess the larger cement companies with a better market reach are in a better position to create the impact as far as profit performance is concerned. We remain distinctively positive about the possibilities. In selective pockets, where the companies have expanded the capacities and have been in a position to register better growth, they too could possibly have relatively better performance than what they did in the previous year. So, this could be the year of cement companies as far as the growth in the profit is concerned.
How much of the damage from the RIL earnings is now already adjusted in the fall in the stock yesterday? It was a tough quarter, but that growth confidence one was hoping for has refused to play out. The guidance continues to be optimistic with that plan to double the earnings in 2029 despite the misses on both retail as well as the fuel refining segments.
Deven Choksey: Yes, more than the disappointment on the quarterly results, I guess the concern is also due to the fact that Russian crude oil sanctions and the resultant impact coming on to the exports of refinery products. That has been the overhang in the minds of the investors and that is what probably is a root cause of the fall in the stock price yesterday despite good results.
Per se the results are not bad. On the contrary, I feel that consumer-facing businesses, the Jio platform as well as the retail business – have both shown remarkably high amounts of performance.
In fact, the Jio platform promises to grow at 20% plus CAGR growth on the EBITDA front as well and as a result of it, giving a vision of around Rs 1 lakh crore EBITDA making company in next two-and-a-half to three years’ time from now. So certainly, these businesses are looking relatively stronger than ever before. This crude issue is basically the cause of concern at this point of time. Sooner we get some handle on it, I guess the stock should rerate, but fundamentals according to me remain quite positive and distinct for Reliance at this point of time.
What is your view on the entire wires and cable space because while Polycab’s numbers were strong, Havells does not seem to be following that trajectory. Are the copper prices in play only on the back of weak summer demand? Or do you believe that certain fundamentals are marring the sector right now?
Deven Choksey: The headwinds are definitely there as far as the copper prices are concerned, along with the profitability issue. Also at the same time, the white goods segment which you alluded to is throwing a good challenge to most because everybody seems to have expanded into this space and at the same time, the business growth is not as high as one would have thought.
Incumbents are also there in the game, as a result of which, we are not getting the margin which otherwise we would like to get. In my viewpoint, the cable business is doing quite well. Of course, Polycab is a different kind of business model. It is a relatively more rich model as far as the profitability and the segment focus is concerned. We believe that the white goods segment would continue to have the same level of headwinds or challenges, even though there is growth available and the margins would always be under pressure.
How much more do you think ICICI Bank and HDFC Bank stocks can fire because they are practically in any case at an all-time peak?
Deven Choksey: On one side, credit growth is reasonably good. In my viewpoint, the consumer finance and consumer credit is definitely promising to be better in the current year, largely because we have a higher amount of disposable income in our hands due as the tax exemption limits have increased and because of that, the spending also increases and with spending, the financial requirement also goes up. This is a cycle. At the same time, the cost of funds coming down is definitely a good sign. All in all, put together, these companies with a larger AUM base could possibly grow at around 15% average growth at least in the next two to three years from now. Companies like Bajaj Finance are distinctly different and promising to grow above 20% rate of growth.
In my viewpoint, the consumer is a king at this point of time and this is where these companies could register better performance. Fortunately, valuation-wise, they are not so expensive. These companies are trading at a considerate valuation. So, there is an opportunity in the falling market to buy the stock into the portfolio.
