Porinju Veliyath, MD & Portfolio Manager, Equity Intelligence India says he does not look at the near-term trends of the market but looks at it from a broader macro perspective and the economy as a whole. He is bullish on the economy as a whole.
With this bullish view, he has selected a unique theme - marine inland navigation and national waterways, given the geographical position, huge coastline and young population of India. The space has been completely ignored for decades now, says Veliyath in an interview to CNBC-TV18, adding that government has now announced about 111 rivers converting into national waterways.
Moreover, with the government earmarking around Rs 70,000 crore funding in the first phase of development, he is very bullish on ITD Cementation and Dredging Corporation and expects these companies to grow five to ten fold in next 2-3 years.
He also likes the hospitality space although the sentiment there had been bad for many years but now is available at attractive valuations. From the realty space, he is upbeat on DLF and Anant Raj.
Below is the transcript of Porinju Veliyath’s interview with CNBC-TV18's Latha Venkatesh and Ekta Batra.
Ekta: Your take on the markets. We have gained around 11 odd percent from that 52-week low that we hit on the Budget. How much more do you think we have to go and how much have we probably already factored-in in terms of the good triggers for the global markets, as well as maybe from the RBI?
Veliyath: With regards to market, I am not looking at the recent bounce from the bottom, whatever has been created. I am looking at the market the way market has been correcting - now market is at the bottom. That is the way I can look at Indian markets on an arithmetic basis and on a macro level, on a big picture on this country.
If you consider Nifty at around 7,500, that has been always the bottom. So, it went down to 6,800-6,900, it is an aberration due to irrational panic and a irrational biasing on the short end which happens in the market once in a while. So, for me market is at the bottom, so I am not looking at 100-200 points, I am looking at next 2,000-3,000 points in the Nifty and how much time it will take for reaching that kind of a target.
That is the way I am looking at the Indian markets today, because India is the fastest growing economy in the world. And talking about bear markets, or bounces does not make much sense. We can talk about a bear market once we reach a fairly large size of the economy which is capable of feeding our 1.3 billion people, something like USD four trillion-five trillion economy.
Latha: I completely take your point on that that as an economy, there is no bearishness at all especially when you have the youngest population compared to any other country and certainly compared to any other large economy. Your point is taken, but I am excited by the theme you have chosen to speak on and your stock selection. The theme you have chosen is unprecedented opportunities in India related to marine inland navigation and national waterways. Tell us why you have picked this very theme and which of the stocks are you going to speak about first – ITD Cementation?
Veliyath: Yes, that is one stock. I was just giving two stocks, but more importantly, I want to about the sector. This is a sector which was ignored in the last 60 years in this country because the geographical position of this country with something like 7,000 km of shore, it is amazing. The transportation in this country feeding our 1.3 billion people, we would have done it decades ago. At least I am so glad, it is happening now. The recent past, there are very decisive moments in this regard to us our hundreds of rivers. Now, government has announced about 111 rivers converting into national waterways. It is a very important step.
Today, the cost of transportation, Nitin Gadkari was once showing it where per unit transportation cost of cargo by road comes to something like Rs 1.5 per unit, kilogram, whatever it is. And, by railway, it is Rs 1, whereas by water it is only Rs 0.25. So, it is a very important thing on a macro level. I think it is in the right way and there is something like Rs 70,000 crore kind of funding is arranged for the first phase of this development. Around Rs 50,000 km of waterways out of which Rs 35,000 km is inland waterways converting more than 100 rivers and something like 14,500 km of coastal waterways.
Latha: The argument is absolutely spot-on. But can we really play this theme through the listed stocks at all, how much can ITD Cementation for instance benefit from this?
Veliyath: They can grow manifold because there will be shortage of people to execute all this kind of large projects. When we talk about Rs 70,000 crore in first phase it is really huge. Dredging Corporation is like monopoly today but when these kind of large opportunities emerge there could be many other companies also jumping into the bandwagon. Still, the leader with expertise and execution capabilities, actually even Dredging Corporation could be well placed. There could be other infra companies also but I want to focus and narrowly focus on the marine and waterways and it can be unprecedented growth which can help our economy.
Suppose we had done this 20-year ago, our economy could have been already USD 3 trillion today because infrastructure, transportation is the backbone of any growing economy. So, I feel it is better late than never and these companies can grow manifold and many of the other listed companies also can get into this industry.
Ekta: If you are talking about say, valuations of ITD Cementation and Dredging Corp what are they currently valued at, what is it trading at and how much do you think it could possibly incrementally gain and what is your time horizon possibly in terms of holding it as well?
Veliyath: I never have time horizon and targets in my life not only in stock picking but generally too. Dredging Corporation is priced at around Rs 900 crore today. It is a government company and it is a healthy balance sheet, some Rs 700 crore kind of debt and it is a very good company. It can grow fivefold or tenfold in the next 2-3 years time. That is the kind of potential is there and ITD Cementation, its stock market price is Rs 103 converting into Rs 1,600 crore of market capitalisation some Rs 800 crore of debt. So, the enterprise value is something like Rs 200 crore.
ITD Cementation is already highly performing company. ITD means Italian Thai Development Company and it is a very professionally managed company with a healthy balance sheet. They are having monopoly in some of these maritime structures kind of segment. So, this company is also likely to benefit immensely going forward. So, stock pickers in India should have the common sense approach which sectors and which companies are placed in the new emerging opportunities to take advantage.
Latha: We are on the verge of a holiday season, summer vacation for students. So, earlier this week we got a lot of holiday stocks as well, hospitality stocks. Sometime back you picked Indian Hotels. Do you still keep your faith in hotel stocks?
Veliyath: The stock price is much below than I recommended three months ago. It was Rs 105 today and now is Rs 95 or so. It is not a well managed company and that is the biggest problem with Indian Hotels. The management is very bad, I have to say that. Otherwise the company structurally is a fantastic company. The kind of operational properties they own, the market cap will at least be 3-4 times if is better managed, if a reasonably good management comes and take it over. But that I can't talk much about this.
There could be companies like the Royal Orchid. It is in a very good expansion mode and a very clean company. It is mostly into management of the hotels, Oriental Hotels. That segment is to be looked at. The sentiment has been bad on the industry for last many years, so these companies are available at a very attractive valuations. That is why I would like to talk about these. And after many years in spite of the fact that too many hotels have come up, too many properties are happening, still there is like shortage of hotel rooms in the five star and four star segments, mostly during seasonal time. So, that is very positive for the profit margins for these companies can go up.
Latha: Real estate stocks actually have been started to get a look in. The kind of guys who told us hospitality is a bet also told us that real estate is an area where they will just start doing some nibbling. What about you, for the long run is there any picks in that sector?
Veliyath: DLF is looking very attractive. T here is a shortage even coming up in many cities of the country, regarding the commercial real estate, the offices and kind of commercial real estate. There is a big demand and the supply has been declining in the last few years. So, DLF and perhaps Anant Raj kind of companies can do well. They have huge built up of valuable properties. The enterprises value today of these companies they are significantly below its intrinsic value, the properties what they own. So, despite the decline in the real estate prices these stocks can appreciate reasonably. But again one year ago I was very bullish on these company that kind of an excitement is not there now but they can appreciate well in the next one or two years time.