What is the future of defence businesses? These are great in terms of top line, growth, government commitment, and the size of the pie. But what about margins? What about return ratios? What about return on equity?
Hemang Jani: When we look at some of these PSUs, be it defence or railways, you cannot at this point justify these valuations, this market cap on any fundamental parameters, whether you look at the PE ratio, whether you look at the market cap to sales or any other return ratios.
The only thing that one can think of is that they have enough government support, and order inflow, and more and more PMSes and AIFs are getting funds because of their performance in the last 12 months or so. I consider this purely as a momentum play and maybe it will last up to whatever it has to last because we never thought maybe one year back that some of the PSU stocks could go up by 10, 15, 20, or 30 times. So, the momentum can surprise for an extended period, but I am not a great fan of buying into these themes at these valuations.
What is the justification for the $30-billion market cap for Zomato?
Hemang Jani: Typically, when you look at platform companies, the good part for any company would be that once you reach a critical client size activity level, any incremental price hike that you may take would significantly improve your operating matrices. In the case of Zomato, in the last three quarters, we have seen that happening. Also, the way they have shaped up the Blinkit business, the way it has got the traction, is adding more value to the overall valuations of Zomato and I do think that in a market like India where there are two major players or at best three players, the size of the opportunity is big and they have already reached critical numbers.
So, I think that while valuation-wise, is a bit difficult to justify but the operating leverage can kick in a big way, earnings can kick in in a big way and fund managers would love that and investors would love that.
What about Angel One? You understand this business very well. But from Rs 3800 odd, it is down to Rs 2200 in a year.
Hemang Jani: I will take a couple of minutes to explain this. One is that for discount brokers, a large part, 85% of the revenue is coming from F&O. So, the recent recommendations given by the expert panel have hit them. Of course, these are preliminary recommendations and the final take will be done by SEBI eventually. But my initial understanding is that the retail clients or the bottom quartile do not contribute more than 2% or 3% of the total business. So, the revenue impact may not be big. But what we need clarity on is that per exchange, one weekly expiry is something that is not very clear because at the moment there are three or four indices from NSE and two indices from BSE which are part of the weekly expiry. So, whether we are going to have NSE confined to one expiry or there will be four – for Nifty, Bank Nifty, Fin Nifty and Mid Cap – that is something that we need to kind of keep in mind. One interesting takeaway from my analysis is that if the final recommendation is that you will have per exchange one expiry, then BSE can emerge as a big winner because currently, the BSE’s market share is hardly about 7% to 8%; 92% is with NSE. But if there is a rule wherein they say that there is going to be only one expiry, that can be a game changer and a big positive for BSE.
