Nischal Maheshwari, CEO-Institutional Equities,
Given how the Q3 numbers have been and the fact that it has underperformed the index by 36%, can Reliance Industries make up for its underperformance so far?
Reliance results have been a bit of a surprise both on the retail as well as on the telecom side but oil to chemical still disappoints, especially on the GRM front. According to our calculations, this time GRMs would have been lower than last quarter’s GRMs of 5.4. The market is going to wait for it to revive because that is still a significant part of the business for Reliance to get strongly rerated from here. I do not think so Reliance is going to outperform the market in the coming quarter.
Once there is more visibility in the O2C business, Reliance may catch up with the rest of the market but there is limited upside in the stock from these levels.
Given that things are turning normal, could L&T restore its guidance this quarter?
We believe L&T is going to deliver a strong set of numbers if one considers what is happening in the real estate and cement segments. UltraTech Cement results have surprised everybody with 15% volume growth. Now quite a bit of it is going into the infrastructure projects. I believe this quarter should have been very good for L&T with its robust order book. One of the few things which we are going to look out for is the guidance for next year’s order book. Secondly, we will look out for what kind of working capital requirements they have. Thirdly, we will see if they have got any new big defence order and what guidance the government is giving them on those defence orders.
There is a new-found fascination with paints and sanitizers as a category. What are you making of Grasim’s move to get into the paints business?
Paints is not a very easy industry at all. Paints is a consumer business and Asian Paints has built its business over the last 35-40 years. So just to assume that one can become the number two player in the category by carrying out capex, is a bit of a stretch of imagination. This is not a commodity business at all and hardly any capex is required. It is a low capex consumer business and we do not see the Birla Group in any of the consumer businesses. So it is going to be tough for Grasim.
If you look at Indigo Paints also, while Asian Paints is a Rs 17,000-crore business, Indigo is a Rs 600-700-crore business and that too it has achieved in the last 10 years. I think it is going to be tough for Grasim and do not see anything happening in the next two-three years.
What is your outlook on the entire defence basket?We have seen a lot of initiatives to make India more self-reliant. Is this a theme you would lean toward?
It has been in the works for a long time and some of it is now starting to get delivered. The big question is how much allocation does defence get in the Budget. The way the defence budget works is almost 75-80% goes to maintaining the current status — the salaries and all and only 20-25% of that is available for any fresh new orders. Among the orders also, the budgeted funds get allocated to orders which are going on for the last six-seven years because most defence works are 7-10-year projects. So very little amount comes to the new projects and that is the challenge.
So order books are strong but it ultimately depends on how much the government is willing to allocate in the Budget for the current year. BEL, Mazagon Dock all have huge orders worth 50-60-70 thousand crore rupees but the execution happens very little every year.
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