Dalmia Bharat and JK Lakshmi among top cement picks in smaller names: Chakri Lokapriya

“The consumption theme is clearly good because the services economy is a very important component and services are directly linked to the number of people hired and their salaries going up. It coincides with the festive season. That is a very good combination for any consumer durable – whether it is a fan or an air conditioner or even a two-wheeler,” says Chakri Lokapriya, CIO & MD, TCG AMC

Ambuja Cement and ACC have an event. The new owner would come in. But what about other cement companies? How would you look at them?
JK Lakshmi is well situated because the valuation is on its side, Plus the drop in input cost translates into higher EBITDA. I think the volume growth is coming back in the markets that JK Lakshmi operates in as well as Dalmia Bharat because it has a strong presence in the south.

Southern construction activity has been weak partly due to unusual rains and thus weak economic activity. Even Heidelberg looks good. So Dalmia Bharat and JK Lakshmi are amongst the top picks among the smaller names.

What about these so-called new-age tech companies like Zomato, Policybazaar, Nykaa, Delhivery? Is there a case to relook at these counters? There is a lot more transparency, Have things changed over the last 6 to 12 months?
Yes, the management is now talking more about profitability rather than growth, which means their revenue growth rates will come down quite dramatically. If revenue growth rate comes down, as all these businesses are highly competitive businesses,including Delhivery which is in logistics, that means even after all the falls, the multiples are indicative of high growth. So yes, they are good from a positional trade perspective but I would not invest in any of these stocks.

Some of these new-age companies are growing pretty fast. Revenue growth rates may come down, any changes with respect to their EBITDA, growth rates and PAT can lead to sharp movement because growth rates are high and a lot of value is coming from terminal growth?
The whole business model was built on the premise that revenue growth in part will be contributed by acquisitions. Now that involves cash burn. But cash is coming down. PharmEasy today is going to do the next round of financing at probably 50% discount to valuation to what it was even less than six months ago.

Even after all the fall, promoters are unwilling to give out at lower valuation versus what they received six months ago which means growth is sacrificed in this whole bargain. Since people buy these companies for growth, if that is sacrificed then you might as well stay on the sidelines.

What about the consumption space? How are you looking at it because a lot of that opening up theme in terms of hotel stocks or multiplex stocks have played out. Do you still see more legs to the rally?
The consumption theme is clearly good because the services economy is a very important component and services is directly linked to the number of people hired and their salaries going up, It also coincides with the festive season for the next two-three months. That is a very good combination for any consumer durable – whether it is a fan or an air conditioner or even a two-wheeler.

Of course, leisure stocks like PVR, Thomas Cook still look very attractive. Thomas Cook is a combination of long term stays, paid membership, subscription as also nom-members who can simply book. So, Thomas Cook looks good. Auto ancillaries will benefit with the pick-up in automobile companies and auto ancillaries will also benefit. Companies like Motherson and Samvardhana Motherson. All these names come under the consumption basket, which will see strong traction because they are cheaper today than they were three years ago. Demand is coming back.