Dipan Mehta, Director, Elixir Equities
What is your view on the entire FMCG sector? What about the fundamentals and what are your top bets?
We are generally underweight FMCG stocks, especially the traditional FMCG like
, and . A lot of the segments in FMCG have reached maturity space, rural demand has been a bit soft and that used to be a growth driver for the FMCG industry, but it may be a bit of a stress situation over there at this point of time.
Although these companies have been increasing prices, still I think in terms of margin performance you may be slightly disappointed. Growth rates have come off and valuations have not declined as much and we prefer to buy high growth, consumption-oriented plays like retail, real estate, automobile, building materials and multiplex companies. There are many ways to play the consumption story and not with FMCG anymore. I would advocate nil to very limited weight in all the FMCG stocks at this point of time.
What is the outlook on ? The latest HSBC note is talking about how the company has guided for a food delivery EBITDA breakeven by the end of FY24 and that does seem to be fairly realistic. How incremental would it be?
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It is very positive and if they are able to do it, then it will improve the sentiment in the stock. The other segments within the company like Hyperpure are also shaping up pretty well and there is of course the subscription in the advertising/appetising business which is adding incremental revenues.
If they are able to get the food aggregation business EBITDA positive, then the only real drag on the earnings will be the new acquisition Blinkit and they will identify those losses separately and the street will start valuing the company excluding those losses.
We are seeing gradual improvement in sentiment and confidence within the stock and we remain invested in Zomato as a matter of disclosure. It is an outstanding business. It is just that valuation wise one does not really have a handle whether it is cheap at these levels or not.
Going by the news flow this week so far, we have seen both JSW as well as up their HRC prices. Clearly something is indicating that the cycle is getting back in favour for these players?
Yes, it could be, but the real action is in the commodity consumers. There are so many ideas in the consumption space, capital goods, defence. It is better to play those investment themes than commodities. The cycles over there are very short, brittle and by and large these companies have not created significant value over the past decade or so. So rather than dabbling in commodity stocks, I would prefer to go for some of the other non commodity based businesses.
There is more stability, earnings visibility and now inflationary pressure is gradually reducing. We should see very good corporate earnings growth coming through in that segment. For us, commodities and metals of all types are clearly to be avoided.