For Uday Kotak to go and do an acquisition of IndusInd Bank will be very tough unless his risk profile has totally changed and he sees something in the Indian economy which we cannot see, says Sandip Saharwal, analyst, asksandipsabharwal.com.
On Kotak & buzz on merger with IndusInd
If at all there is a merger, it will be positive. If this merger had happened a year, a year and a half back, then we were unsure of the quality of the book of IndusInd and there was a lot of chaos around it. Now we are reasonably sure. So any merger now could be positive given the sheer difference in the price to book valuations of both the banks. There is a direct benefit that Kotak would get and they get a significant amount of deposit franchise and a lending franchise in some segments where Kotak has not preferred not to be. They will need to adjust there.
Overall, on the results front, Kotak has been conservative in this downturn and that conservatism will show in their loan book and could in turn impact the profitability unlike HDFC Bank which found out some new arenas for growth. Purely on results, we could see some disappointment vis-à-vis what the Street is expecting.
On biggest hindrance to Kotak-IndusInd merger
We need to see how this plays out. Today Kotak is not known to play blind and the points you pointed out are very relevant, The credibility of this news in my view is very doubtful. I would think that for Uday Kotak to go and do an acquisition of IndusInd Bank will be very tough unless and until his risk profile has totally changed and he sees something in the Indian economy which we or I at least cannot see and so I think that is where we should leave it.
On Tata Steel
A lot of things are happening on the Tata Steel front with Tata Motors in the background which could take more time to play out. Tata Steel benefits because of its integrated nature of operations given the uptick in steel prices, the flow to profits is very direct unlike in many other non-integrated steel companies where coking coal prices, iron ore prices spike up does not benefit them so much as steel prices move up.
We have to see the European restructuring happen because it is being talked of for many years but nothing much has happened. Hopefully, this time something happens and that will take one headache out of Tata Steel. Overall, the steel cycle seems to be playing out well and Tata Steel is the best play in the Indian context on steel.
On SBI Cards
One should buy into a financial services sector or stock in a segment which should grow decently. The second part you need to consider is that SBI Cards is a PSU company and there is only so much valuation you can give a PSU and to that extent it currently trades at around 75 to 80 times earnings. I find the valuations excessive. I do not think it is justified because in terms of digital payments, besides credit cards, there are a large number of other formats which are doing very well. There is Google Pay, Paytm and there is UPI which has picked up stream. RBI is making RTGS, NEFT available for 24 hours.
In that context the kind of growth projection that people might have for SBI Cards might be exaggerated. We need to see how that goes out and the management commentary obviously has been varying. In the last quarter, they said things are back to normal and could be going back over pre-Covid level. Once the results came out, we saw that the result picture was totally different and I think in between the CEO also changed. I would think that at Rs 800, there is very little value in this stock. If it comes off significantly, then we could possibly consider.
I have realised two things in my interactions with auto companies. One, there was a pent-up demand, most of these companies are now saying that that pent-up demand part seems to be over. Secondly, they have stocked up a significant amount of inventory with dealers because they believe that this festival season is important for them given what has happened over the last couple of years and they want to be sure that if people are coming to buy, stock is available. So, if the retail sales do not pick up so much in this festival season, then we could see some sort of inventory pile up. Thirdly, most of these companies are very unsure of demand post the festival season.
On the other hand, there is this personal mobility argument which also seems to be reducing now because public transport is coming back pretty strongly. So, that incentive to buy might not be there. So do we buy Maruti at Rs 7100-7200 or do we wait it out for a couple of months? I think at this stage for people who did not buy lower, could wait it out. If they continue to do as well going forward, then obviously the opportunity will be greater and the stock could be much higher but if demand starts to falter, then we could see all these auto stocks including the two wheeler ones give up a decent amount of their gains because they have been such huge outperformers.