This morning’s big joke is on Zomato, saying you know our own home kitchens take longer than 10 minutes, how are they going to deliver food to us in 10 minutes?
Yes indeed, but I guess they will also have their guys all driving on the wrong side of the street to deliver faster, but the company has said safety will be a priority. The question is whether you order food at your favorite restaurant, whether you order your favorite dish. That remains to be seen, and it will determine the success of this endeavor, as it’s not just when, but also where you get your favorite food. Security is clearly a very big issue. But from a pricing perspective, I doubt the announcement will have any impact on the stock.
There have been reports of one of the Ukrainian steelworks with a very large capacity being ruined by bombardment from the Russian side. It will take two good years for it to be operational. So, sentimentally, does this put some of the steel exporters in a good position?
Yes, absolutely right, as Australia also restricts the supply of raw materials like bauxite and other raw materials from various Russian companies. This will continue to drive up prices for steel, aluminum and all those commodity companies.
Commodity companies are trading at very low valuations of three, four, five times. Valuations are therefore on their side, but their own costs are also rising because coking coal is more expensive. So they need to raise prices further, which will be a tough call given that the general environment is still a bit uncertain because of Ukraine. Russian conflict. But clearly these stocks are positional investments and because valuations are on their side and balance sheets are stronger for companies today than they were two years ago.
What do you think of the reasons why real estate is outperforming? If the economy slows due to high energy and commodity prices, this will impact consumer demand. This will have an impact on the margins of real estate companies. But yet, real estate stocks managed to rebound this fall?
Yes you are absolutely right. Until this quarter, they are showing very good numbers because they have liquidated their existing inventory. Now, as we approach the next two quarters, based on their raw material costs – steel, cement costs have increased significantly by 10-15%, the question is whether they have the power to pass it on to prices. They are unlikely to pass it on and therefore margins are likely to be affected.
These companies were trading below book value a while ago, but not anymore and so much depends on how quickly all input costs come down for real estate companies. But currently, it looks unlikely to decline over the next two quarters. So individual players like Sobha, Phoenix are stronger companies that are likely to do well, but as an industry, even DLF has cleaned up its book pretty well. So it will also behave well. So it’s more specific to equities, but as a sector they will face pressures on commodity costs.
I don’t know how closely you followed Delta Corp. It’s this broader theme of re-opening names that’s also doing well. Multiplexes and hotel names all rallied massively from their previous lows, but Delta Corp posted a 10% rise in a weak market yesterday. What was happening?
I’m not following Delta Corp that closely, but I guess the theme of reopening trade remains intact. This time, international travel will be much more expensive than domestic travel due to increased airfares, etc. This summer we will see the first real unlocking trade among all resort and leisure companies and they will do well. Delta Corp clearly fits into this theme of getting into the summer leisure business and these businesses are likely to do well.