ITC's cigarette business may light up the stock soon

If you have a long-term view, ITC is one stock which you should be adding right now, says Rajat Sharma, CEO, Sana Securities, in this chat with ET Now. Edited excerpts:

Corporate banks are coming back in action. What's your outlook?
It would be very interesting to see ICICI Bank's results. I have been negative on financial services because of moratorium and loan restructuring. Bajaj Finance's NPA in auto loans was at 19% - that is one-fifth of their books. It is not a small number because that segment delivered 9% of their overall revenue, which is huge. Even consumer-lending NPAs more than doubled. But then the stock was rallying positively for some reason.

One year is too small a timeframe for companies to increase provisions. Many MSMEs and small businesses have suffered. The traditional valuation models are not good enough to assess whether these companies are rightly valued or not. You have to look at the liquidity position and how much money is going to flow into the market with interest rates and bond yields being so low. There is a party going on in the equity markets. If there is a 5-10% correction, it would not stop there. If the Nifty was back to 13,000-13,500 level, I would still find it expensive.


If you have a long-term view, ITC is one stock which you should be adding right now. During Covid, cigarette sales have been at an all-time low. It will pick up in some time. They have done well in the non-cigarette FMCG business. The stock is undervalued right now. We make a lot of jokes (on ITC) and a lot of memes are going around on Twitter but I personally like the stock.

Vodafone Idea is still under pressure. Where is the telecom sector headed?
There was some news about Vodafone Idea raising Rs 15,000 crore but nobody has committed to invest. On the AGR issue, re-computation has again been denied by the Supreme Court. Clearly, these companies cannot pay the dues even if interest was waived off because that would be greater than the market capitalisation of Vodafone Idea. So even the most positive news on this front would probably be a negative for Idea. The competition is so stiff between the top two players - Reliance Jio and Bharti Airtel - that nobody wants to buy Vodafone Idea right now.

The general sense is that eventually all subscribers of Vodafone Idea would shift to them anyway, so why should they pay to buy them. It will eventually become a duopoly. I do not think Idea would stand to gain anything. It would be a natural process of slow death for Idea.

I have stayed away from telecom for a long time. Right now, if you do some primary research you would probably see that Airtel is gaining market share much-much faster than even Jio. But again with 5G rollout and airwaves being used to even connect broadband, all this infrastructure could be history. That is the problem with technology-oriented companies. A little change in the technology could make a lot of the hard work almost redundant. So I would like to stay away from this space as a whole. As a consumer you benefit greatly because of competition amongst these players, but as shareholders there is no pricing power. They have huge debt and issues going on with their past dues. I do not think how this space can create value for shareholders.