Ex-bonus, RIL fair price will be around Rs 1,000: Neeraj Dewan

Neeraj Dewan of Quantum Securities analysed how RIL’s new Jiophone is going to disrupt the telecom and cable businesses. Excerpts from an interview with ETNow.

ET Now: Let us talk about the RIL stock. The bonus, good numbers and this entire Jio handset appeal; is everything built in at Rs 1,600 a share? Do you think we need another trigger for RIL to move into a different orbit?
Neeraj Dewan: I do not think all of it is fully built in price. Because the kind of mass penetration it can have will be a reality only when we see the numbers. I think the numbers should improve substantially down the line. Ex-bonus, I can see this price trading again at Rs 1,000 or so. There is still some upside potential. So there may be a consolidation phase, a small correction phase which may happen when the market corrects or consolidates. Earlier, we saw RIL consolidate in that Rs 1,300 level. It may consolidate again, but I do not see a major correction there. After the consolidation, once the numbers are visible quarter-on-quarter, there can be a bounce. One should just use any opportunity there to add the stock.

ETNow: What about the implication on some other telecom players, because while we are seeing a lot of consolidation, disruption is really the word to describe? How are the companies that are already reeling under debt and have stretched balance sheets going to cope with this? What is the outlook for the rest of the players from the telecom pack?
Neeraj Dewan: There will definitely be disruption there. Whether it is Bharti or Idea, there is a possibility of some shift happening or at least the growth we would have expected may not come. So there will be pressure there. The growth is going to come more from tier II, tier III cities, where they are going to get data at cheaper prices with a handset that is virtually free. They will definitely try this out, if the quality and service match anyone’s expectations.

So there is going to be disruption even for cable TV operators and dish TV operators, because you are going to get data on the handset, which you can use for a lot of entertainment.

ET Now: Let us revisit some of your investment ideas. We talked about Nandan Denim last time. Is this still a high conviction idea?
Neeraj Dewan: Yes, I am still positive on Nandan Denim, because valuation wise, it is quite attractive. It has put in more capacity as far as denim is concerned and the capacity is also stabilising now. Going ahead, margins will improve further, because it is a fully integrated capacity that they have put up and it is available at 3-3.5 EV/EBITDA on FY19, which is pretty reasonable with the kind of high ROC that the business has. I think it should continue to do well. I think the stock has a an annualised upside potential of 20-30 per cent.

ET Now: HDFC Bank’s Q4 numbers were absolutely breathtaking. They surprised even best or most optimistic analysts as well. Based on what we have got from HDFC Bank along with their Q4 numbers, is there a reason to believe that they will continue to surprise even at efficiency level and at operating level?
Neeraj Dewan: Yes, I think so. You have already seen a couple of numbers from the private sector banks such as Kotak came out with a very good set of numbers. I think among the retail-focused players, HDFC Bank is the pioneer. The kind of franchise that HDFC Bank is and growing at this rate even after such a big balance sheet size is tremendous. It should continue doing well.

People who are waiting for these high valuation stocks to correct may have to keep on waiting because over the next one to two years the kind of consumer spending growth we are seeing will continue to happen. I do not see any letdown in the performance of these stocks. You can still see another good quarter from HDFC Bank.

ET Now: We had a consensus technical buy on Engineers India in the morning from our experts. Fundamentally, you have been liking this at Quantum Securities for over a year now. Somehow the stock has not lived up to its promise.
Neeraj Dewan: Yes, last quarter the company did show some promise in terms of execution. So there was improvement of about 40-odd per cent. This is the lower margin business and there is a 20 per cent improvement in the consulting business as far as execution is concerned. The order book is huge and it is about 40% from their consulting business. Going ahead whereas execution is going to pick up, you will see the numbers really pick up for this stock. Even at current valuation, it is not cheap. But once execution picks up, multiple benefits of operating leverage will also come for the company and with higher margins business growing faster at 40% of the total order book, it can really give them a very good margin and high ROC. We are still positive on this stock and we can see a lot of improvement in execution over the next one, one-and-a-half year.