Commenting on the Mistry-Tata issue, said Samir Arora of Helios Capital said that the departure of Cyrus Mistry from the Tata Sons was handled as badly as that of Raghuran Rajan from the Reserve Bank.
The biggest supporting factor for global markets is the low interest rate, said Samir Arora of Helios Capital adding that it won’t change even if central banks hike rates.
Commenting on the Mistry-Tata issue, Arora said that the departure of Cyrus Mistry from the Tata Sons was handled as badly as that of Raghuran Rajan from the Reserve Bank.
“The reason given for Mistry’s departure are ridiculous,” he said, adding that strong vision oriented person is needed for the Tata Group.
Arora believes that there is nothing to panic about as far as Tata Consultancy Services is concerned. However, Tata Motors – a company that maybe well run – but is not well accounted for.
Below is the transcript of Samir Arora’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Sonia: Not a very happy Diwali for investors here in Mumbai, but how have you read into the whole Tata Group saga?
A: There are no winners here other than some people who may be short. But in general, it has been as badly handled as Ranghuram Rajan’s departure and you can anybody exit, nobody minds. But it should be done with a little bit of respect and decorum and with a little bit of process that is visible to all.
Anuj: You had tweeted the hidden camera photo from Tata Board meet yesterday. That was quite interesting. But what happens to the stocks now? We have already seen a bit of a de-rating. Personally, do you see this as a buying opportunity or would you give it a wide berth for now?
A: No, I anyway did not own any Tata stocks before and we were actually short three of them and on the day of the announcement we added one more stock. But in general, my thinking is that the reasons given for Mr Mistry’s departure are totally ridiculous because you needed that in this environment where it is clear to everybody that the debt is too large as a group and that for trustees to say – I saw an interview where they said we are not getting dividend where they should be thankful that even in the companies they are getting dividend because we do not believe for example that Tata Motors should be getting dividend.
Their debt is high, they do not really account for hedging losses, they do not write-off their development expenditure, their trade is like three times what Audi and BMW and the others had. So, even that is not to be given to the extent that if at all it has been given.
So, actually maybe at some level, you needed both the philosophies which is a big picture long-term growth, but with the eye on numbers and debt and all that and so maybe a stronger CFO is required under Ratan Tata’s tenure or if it was the new person tenure than maybe a stronger vision oriented guy is required if at all that is the final bout.
Latha: But, put on the hat of a fund manager. What would people with long-only India funds, say maybe Tata Motors or even a little bit of Tata Steel in their portfolio do now? Do you think they will sell off?
A: I do not know about them, but because they do not look at everything. Nowadays, we do not look at balance sheets, they want to look at momentum. Otherwise it is so obvious in the balance sheet of all these is beyond limit. But if you want to say price is gone up USD 2 or if somebody has put anti-dumping, so I will give it a permanent multiple.
If somebody does anti-dumping and that earning is protected for one year, but let us say the earnings of a company are protected by some government action for one year, we give it a whole multiple as if the earnings are now 20 percent higher than they were. So, the stock should go up 20 percent. It is ridiculous. So, I am not in that camp where this kind of thinking.
Sonia: Some of the smaller stocks were beginning to come out of their large underperformance under Cyrus Mistry truth be told, stocks like Indian Hotels for example, Tata Communications and clearly there was effort on part of Mr Mistry to deleverage some of these companies. Do you think these stocks go back to square one?
A: I do not know that specifically of some of them. I know of Indian Hotels, because we were interested in that at one point. But big picture sense I am saying that it is wrong to put all the blame on Mr Mistry. That is all I am saying because in the environment that we are in today and the environment we were in, in the last four years, for anybody to think that growth should have been the focus and no focus on cutting debt, first of all we do not know exactly what the fight is about.
But the interview made it look, oh my God, I am not getting dividend. Well, welcome to the real world, nobody is getting dividend these days because you have high debt, your first priority is that. We do not know the issues that what will be the thing, but it is like anything else, where the leaks make it look as if it was growth versus keeping an eye on the bottomline. And if that is the issue, every fund manager will say keeping an eye on the bottomline is first priority and then you can afford growth. But who knows what the issues are.
But the other thing is, look at the process. We make fun of these MLAs or highjacked and taken to Goa and somewhere just before a vote, so that they cannot vote. If somebody is in so much legal control, why not give openly 10 days, so that everybody feels that due process has happened.
Sonia: If you had to take a step back - I know you are not invested in any of these stocks - but if a long term investor is invested in names like Tata Motors, Tata Consultancy Services (TCS) they are in any case run by boards of their own, very well run companies. Do you think there is nothing to panic about?
A: TCS, related to this, nothing to panic about because it is no discussion or issue that something in that strategy is changing or was wrong. In Tata Motors we would say that it may be well run but it is not that accounted for.
Latha: Some of the fund managers I spoke with refusing to come on camera but their point was exactly what you are saying that Mistry was really running it well and cutting down debt and cutting down useless assets. Now that he is gone should we see some of these fund managers trimming their holdings?
A: No, first these fund managers should come on TV. What is Mistry’s negative at all, is that he was not an extrovert or an outgoing person, he did not create his own constituency by directly meeting investors, shareholders, public, press and all. So, that was a negative because if you want to carry god knows how many employees they have, you can't do that by email or one interview in four years.
You need to be out there. It is the same thing with our fund managers. Unless they are going to completely do opposite of what they say in 10 minutes it is absolutely nothing wrong in coming out and say what they feel and carrying the support of their own investors and shareholders. They just want to hide in their rooms and then say I am not interested.
Sonia: So, do you think that the corporate governance premium that the Tata Group has been enjoying for so long has been tarnished a bit because of this issue?
A: Not so clear but it shows that in the end everybody is a human being and they all have similar things. So, we should stop making fun of politicians.
Latha: Did they really enjoy such a premium?
A: But actually there was not even a premium. Not much of a premium, they were okay, actually they have been good guys. They have been around for long and their general ethics and all clearly nobody can doubt. Corporate governance related to shareholders I don\\'t think in the past was also super good in many instances. Given that is not related to today but I don\\'t think corporate governance was something way different from the world.
Anuj: What about the markets now? We have seen a bit of an outflow from Foreign Institutional Investors (FIIs) and that has been a global factor. Are you spotting some bit of headwind for this market now and do you see significant correction, by significant I mean another 4-5 percent from here?
A: 4-5 percent it can happen in two days and it will not be called a correction by me. If you remember in February it was down some 10-12 percent or maybe in January and February combined. So, four percent would not be called a significant correction but in general I still think that overall although everything has got delayed in terms of economic recovery and other things, the biggest factor supporting us is the extremely low interest rates in the world and that is not going to change even if they raise the rates by a quarter percent here or there.
And in the time that they try and increase it much more hopefully our economic recovery would have come back but the base effect would still mean that you would grow at 10 percent this year in earnings that is March 2017 over March 2016 and if some companies won\\'t grow we will remove them from the way because there are so many other companies that we own and many people own and which are still growing 15-20 percent or more, the same old stocks as you know.
Latha: Just wanted to get your view on what story the Hindustan Unilever numbers and the Axis numbers are telling us. Axis profit down to Rs 300 crore because of unrecognised non-performing loans (NPL) now getting recognised and HUL telling us that the market shrank for them. Is it telling you a story that the market is overvalued?
A: Both were know, particularly HUL’s was known because when HUL made an announcement of their results, they said that our Asia results are bad or emerging market if I remember and even in Asia, they said only Indonesia is doing well. And the overall number made it clear that HUL’s results will be bad.
In Axis Bank it is ridiculous to think that six months ago, they did know that, say Bhushan Steel or some such blatant asset just because you have got some interest for one quarter means that this will not be an NPL within a few days. So, some of them are so obvious.
But I do not know because I cannot imagine that a completely new company has come into and suddenly become an NPA. Most probably it is that you knew it is an NPA, near NPA, but they have made you one instalment so you can afford to push it forward. So, in that sense, nothing has changed it is basically a continuous fall is what we would think.
Latha: Now to come back to ICICI and therefore, the Axis Bank issue. The issue with Axis Bank was not as you pointed out that very obvious NPAs were not recognised. It is not that rise in Rs 7,000 crore of NPL that worried the market yesterday and perhaps day before. What worried is the fact that they said, of their watch list, first it was 60 percent that would go bad, now they are saying they cannot be so sure. They clearly indicated that life is looking much worse now than it looked six months back when they put out that list. So, is there more to process even in the ICICI’s and the corporate banks?
A: And the second thing they said was a loss given default is higher than what people thought before, because they said these projects are too big, they are too complicated and therefore, there is not enough ability to sell the known NPAs.
So, the loss given default, they have made it 70 percent from 60 that people were assuming. So, in ICICI, the thing is that it was a good event, but it had no real value in the sense that this was not even an NPA to start with. And maybe it was one of the better assets and now you have less exposure to it and you get back half your money or whatever.
So, it is good just because maybe that man will generously put Rs 1,500 crore in another investment. The sad part is that all these guys will go for 20 years. There are a lot more guys but we want to rediscover everything from zero each time.
Anuj: Your thoughts on ICICI Bank because clearly some things have changed over the last few days. We have seen a lot of delivery based buying.
A: We do not own, but much better than Axis, relatively speaking if nothing else, because they have assets to sell and they have sold and therefore they have more ability to set it off against NPAs and plus, they got this money back which at least to that distressed group made it look like the exposure is less and all that.
So, in that sense, and also if you look at it two days ago, the relative performance difference, before Axis fell, which was yesterday or day before, the difference was at 25 percent for what, in year to date performance.
Latha: What are you buying for yourself from the markets on Diwali?
A: For myself, I do not buy stocks because I buy them in the fund and in the fund, I am not buying today anything but we may cover some of the shorts. Someday, that will be called buying them.
Sonia: I saw this hilarious picture you tweeted, a fusion of Hillary Clinton and Donald Trump. Is that your way of saying that it does not matter who comes on board, the market is going to move on?
A: No, that was just I got it and I sent it forward. I am not giving subtle, below the radar messages through my account. I think that Donald Trump, first whether he should win or not, I will not discuss here because those are controversial things and also does not matter. We have to worry about what will happen, not what should happen and there is no probability now for Donald Trump.
And if he had one, it would have been one more interesting outcome, but the markets would have been, what I understand when I was in the US three weeks ago that they say it will fall 15 percent if that happened. But now there is less and less probability of that. So, that event is hopefully not, given from a market point of view. But it could also mean that nothing will happen. It will go on as normal. Just okay, right now because right now the outcome would have been negative if Donald Trump wins at least initially.The Great Diwali Discount!
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First Published on Oct 27, 2016 09:56 am