Wait and watch in telecom, buy YES Bank if an aggressive investor: Sudip Bandyopadhyay

The entire AGR issue needs to be resolved and till it is resolved and we know exactly how much the liabilities are and when that needs to be settled, question marks will remain on telecom industry, says Sudip Bandyopadhyay, Group chairman, Inditrade Capital. Excerpts from an interview with ETNOW.

On telecom companies
There is a lot of uncertainty about the telecom companies. The issue of raising tariff is finally being tackled and that is a good thing. You cannot keep the tariffs artificially lower at such level where it does not even cover your operating cost. This maturity was absolutely critical for the industry and that is happening. It is good and it does augur well in the long term. But having said that, the entire AGR issue needs to be resolved and till the time it is resolved and we know exactly how much the liabilities are and when that needs to be settled, question marks will remain on the industry.

We need to be extremely careful. Yes the market is cheering the news that the tariffs will be hiked and both Bharti Airtel and Vodafone-Idea have moved up quite a bit. But I would still advise caution as far as investors are concerned. We need to wait and watch this space before we jump into the bandwagon.

On banks and PSBs in particular
As far as banks are concerned, I think we need to factor in two things: a), last week’s Supreme Court judgement on the IBC process was a landmark and that re-established the supremacy of the secured creditor. That is pretty much what was required and that has happened and that does augur well. The Essar Steel case set the precedent for similar cases like Ruchi Soya, Uttam Galva and innumerable other IBC referred matters where the banks will have excellent and timely recovery.

We are looking at record recoveries, most probably during the later half of this quarter or the next quarter. That well for banks -- PSBs as well as the large corporate facing private sector banks. Remember, most of these assets have been written off in their books and the entire recovery will come in and get back net of tax to their net worth. So this looks very good.



Of course the cloud over the telecom exposure is something which we need to put under microscope now and examine very carefully. My belief is that some solution needs to be found on the AGR. It is too big a problem to let it continue. If it is not handled appropriately, it can become a huge problem for not only the telecos and their banks but for the entire economy.

I am confident something will be done and banks will not be required to write off or take a hit as far as these exposures are concerned. Considering these two things, I will not shy away from taking exposure in banks. In fact, we have been recommending buying into ICICI Bank, State Bank of India and some of the smaller private sector corporate facing banks.

On investment merit in BPCL, IOC, Concor & other PSUs
As far as BPCL, Concor and IOC are concerned, I do not think I will recommend a buy at current levels. These companies are good companies. They are performing well. The management quality is good. The fundamentals of the business are sound but the valuation at this level looks rich. If only strategic disinvestment happens, we will take a call post that. They are definitely going to see a different kind of structure very soon and if it is an acceptable strategic partner which the market likes, the valuation can move up from here. But we will have to wait and watch.

But if you are asking about the entire PSU universe, my view has been pretty clear for quite some time. There are more opportunities. Bharat Electronics is a fantastic company. Whether there is a disinvestment in the cards or not, fundamentally it is a strong company with good balance sheet, fantastic business. Defence, Make in India gives a lot of opportunities and the way the balance sheet of the company is, one can take exposure there at current levels also. If you look at some of the companies in the power sector -- be it an NTPC or NHPC, at current levels, they are worth looking at for a long-term investor. Similarly. there are other opportunities in pockets in the PSU space and these have nothing to do with disinvestment.

On insurance stocks
Insurance stocks have given significant returns over the last few quarters and it is a great business. Life insurance companies have got huge potential to give exponential returns to investors over a period of time. But what has happened is in a very short span of time, they have moved up quite a bit which does factor in the future returns for some time. I would be a little cautious about buying these shares at these elevated levels.

However, if I have to still go and buy an insurance company, I will probably go and buy an SBI Life. We believe it is relatively undervalued compared to its peers and that is where my bet will be. There is another bunch of stocks which are the general insurance companies -- be it a Lombard or other GIC companies. But ICICI Lombard, considering the performance and the management quality will be my pick on the non-life insurance space.

On intermediates like paint, cement, chemicals
The IIP numbers which came out was a huge disappointment and pretty much everything was down and we are facing a crisis like situation as far as the growth is concerned. But one segment which stood out amongst all these numbers were the intermediate goods and that is where cement, chemicals, agrochemicals come and there was a 7% growth in intermediate goods. That very clearly shows that this is one segment where there growth is still visible.

We have been bullish on cement and chemicals for quite some time and we maintain our view. Out of this entire space, we like cement. We believe that the public spending will definitely propel cement companies demand. Also, companies which are focussed in north and central India because of the demand supply situation, at least till 2021, will have an upper hand as far as pricing is concerned. We maintain our view that these companies should be bought. There may be individual pockets and individual cases like JK Cement which needs to be looked at because of fantastic white cement margins.

One can look at Birla Corp because of the business which they have bought from Reliance Cement and the quarries which they have got because of that buy. That also can be bought at current levels.

As far as chemicals are concerned, they have moved up quite a bit but there is enough opportunity in the chemical companies. Companies like Aarti Industries can definitely be looked at even at current valuations.

On privatisation of discoms
A lot needs to be done and there is absolutely no denying the fact that there is distress in discoms on the back of the fact that we did not allow them to raise their tariff and charge commercial rates. End of the day, if the discoms are not viable, the power producers will suffer. So the structure needs to be corrected, the discoms need to have the power to charge tariffs which are commercially viable and probably that is why in a public sector setup, it is becoming challenging. So, privatisation may be an easier solution. But having said that I think the root cause of the problem needs to be addressed which is getting the tariff right as far as power is concerned for multiple segments.

There can be variation, there can be peak and non-peak tariffs, there can be variation between the sources, but it has to be viable. As an entity, discoms have to be viable and that needs to be done.
There are enough opportunities in the power sector. Established power companies which have their backend and frontend tied up is like an annuity business. They will continue to produce a standard, stabilised return over the years and that is why we like companies like NTPC which is pretty much backend and frontend tied up. They have their coal linkages done, they have their PPPs structured and they are one of the most cost efficient producers of power in the country and in the world. If you are a long-term investor, we can start buying good quality power companies for a long term.

On YES Bank
I have been bullish on YES Bank for the last couple of months. When it was around Rs 40, we have been recommending a buy. I think all the bad news has been factored in and it has got a large retail franchise, it has got a developed business, it has got a fantastic set of people at different levels. It cannot be written off when people were talking about value coming to zero and things like that. But that is not correct. There will be enough and more investor appetite for YES Bank at a particular valuation and that is what we have seen.

I am not sure at what price eventually the fund infusion will happen. but I am reasonably confident that there will be interested buyers at reasonable valuation and that may be higher than the current market value. If you are a little aggressive investor, it definitely makes sense to buy into YES Bank at even current levels.