Deven Choksey on why markets continue to give step-motherly treatment to SBI

Any correction or fall in the price of L&T would be an opportunity to buy, says MD, KR Choksey Investment Managers.

The big news maker has been Jio with the eighth cheque from RDI coming in. Do you think this is a stock which will continue to move up higher?
Around 21% investment has already come into Jio platforms. They are from strategic investors or from PE investors or from the sovereign investors now. If you study the profile of these investors, a strategic investor like Facebook is going to stay in the company and is a lifelong partner. Then you have the PE investors. Four of them are likely to stay in the company for around seven years by which they would like to see their investment materialising into better profits for them. And the sovereign investors from Abu Dhabi, both of them from one family, are likely to see their investment continuing for 15 years and above.

When you have these kinds of investors coming in, two things come out. One is the stability of investors, which is an important and one of the bigger aspects. Each of these investors are adding some amount of strategic value to the company. The PE investors are adding value in the form of the amount of investment that they have done into tech platforms. Those experiences will work better for Jio platform in getting some of their verticals started. In my viewpoint, if I see the listing of the Jio platform happening somewhere around 18-24 months from now, probably one could argue that as against $68 billion worth of valuation currently, one could possibly ask for three times more valuations than the current level, which is somewhere close to the vicinity of $200 billion and that could be the real game changer for some of the investors as well as for the company as a whole. So I think that possibility is on and you will see the amount of investment interest coming into the company once you see the rights shares getting listed into the market.

Lots of earnings to react to this morning. L&T said in this current environment, they cannot possibly put out a guidance. Looking at the earnings, do you think the valuation and time is correct to bet on L&T or do you think there are other opportunities in the markets so it could be avoided for now?
The good part of the commentary is that they have the orders in hand and they have the customers who are willing to execute those particular orders. At the same time, the challenge continues to be with the labourers who are not available as a result of which the timelines are going to go haywire. How soon or how fast we get the good news on the workers or labourers who come into the execution of the project would probably determine how fast they will scale up as far as their business is concerned.

As they rightly said, it is difficult to predict numbers. The company cannot make out what kind of projects will get executed. So I think let us not look at the April to June quarter numbers. Probably in the July to September quarter, we should be first asking for recovery and if their recovery is on, then somewhere in the subsequent quarter, we should see normalcy as far as the work of the company is concerned. Till that point of time, the stock price might continue to remain in range; maybe liquidity flows into the stock and probably you can see a little upside every now and then as the time progresses and that is where one could possibly argue that any correction in the price or the fall in the price would be an opportunity to buy.

How long do you think markets will continue to give step motherly treatment to the State Bank of India? They are doing okay on all accounts, their moratorium numbers are lower than best of the private banks. Does that clearly tell you that the market's concern about their entire asset book running into trouble is also misplaced?
It is absolutely correct. As far as the bank is concerned, people are not doubting their business operations. They are relatively stable operations. At the same time, each of their franchises hold the potential to monetise the capital receipt. Going forward, like we saw in case of SBI Cards, eventually we will see monetisation of many other franchises in their portfolio including the AMC companies and their insurance businesses. So they are relatively positive.

At the same time, I would think that operationally the bank is doing reasonably well. The analysts and the fundamental community are worried about two things. One, the public sector banks do not have the consistency of the management and more or less this is one issue which is haunting them because by the time the manager understands the customer, he has shifted to some other department or some other place as a result of which the link breaks as far as the growth is concerned. This is one significant issue which is a weakness as far as the public sector banking system is concerned and that is a reason an investor does not have enough confidence beyond a certain number of quarters as far as working of the company is concerned.

Otherwise SBI in particular is as modern as any of the private sector banks and probably they have the maximum amount of potential to capitalise on the opportunity that they have in front of us. At the same time, valuation-wise they are relatively quite inexpensive. As some of these issues get corrected, I think the bank would be in the favoured books of investors going forward.

Should one look at Titan or the multiplex names or do you think one can still wait it out?
The March quarter numbers probably would not mean anything to me because those 15 days of end of March are probably lost as far as most of these companies which you named are concerned. They are already lost. So one will have to see how much impact it will have. The important aspect would be to watch out their commentary for the current quarter and the next because Titan reportedly has started some of their stores and probably one would like to understand as to whether they have also started attracting the footfalls, not in the major cities but in the smaller cities where they already have some amount of traction. If that comes out positive, then it would be an interesting thing to watch out for.

As far as exhibition space is concerned, one will have to wait longer. They are prepared to open the theatres but it will probably be July before some kind of activities get reported. There are many releases which are pending but whether the people would have enough confidence to go into theatres hereafter will have to be seen. So some of these behavioural aspects also will have to be seen by looking at the commentary of the management. We are not very sure whether one wants to take an immediate call but yes, at some point of time companies like PVR, which is holding cash in their balance sheet, would possibly become relatively more interesting if the market gives opportunity at lower levels.