Which stocks should investors pick from largecap private banking space?Chakri Lokapriya answers

"Bajaj Finance, the AUM growth rate for next year at about 25-26% is clearly lower than the 35% that was delivered last year and this deceleration is in a good part because of the RBI ban on some of its various products," says Chakri Lokapriya, Managing Partner, RSB LLP.

I wanted to talk to you about Force Motors. The results are today. Do you track that counter? Out of all the other auto companies, if you can pull up Force Motors chart for the last three months, the way this guy has been running, in fact some are saying that their some of the products actually have got approvals for being supplied to the defence. Up till now, they were only on the consumer side, direct to the consumer side. Now, if defence open up, then B to G opportunity could be a very big one. Have you tracked Force Motors outperformance versus other auto companies recently?
Force Motors is a company I have not invested in actively. But what we do know is the company's focus now in the defence sector is accelerating and the list of commercial vehicles for the defence industries is accelerating at a very strong pace and that not only provides it with a strong order book, but also provides it with opportunity to export in the future, so that positions the company really well.

But Bajaj Finance, those numbers were below estimates and it seems like they are guiding that the AUM growth is now going to be 26% to 28% versus that 30% plus that we have been used to. Return on asset ratio is expected to come down. Credit cost is under pressure. Do you see a big de-rating for Bajaj Finance despite that BHFL listing that Streets are banking on?
Bajaj Finance, the AUM growth rate for next year at about 25-26% is clearly lower than the 35% that was delivered last year and this deceleration is in a good part because of the RBI ban on some of its various products.

Yes, the company has applied to RBI for the removal of the ban. As and when that happens, there will be some amount of reacceleration to its overall AUM growth rate. But given that the date is unsure, I guess, they have been conservative and guiding that 25 percentage growth.

Against this backdrop, the valuation where it is and also given the fact that the rural portfolio is still not really growing fast and because the rural India spend is still slow, against a combination of these factors I would stay away from the stock.

A clear classification or distinction now being made between PSBs and large private banks. Kotak, of course, is now a special situation case, but HDFC Bank as well has been much of an underperformer so far. It has definitely lifted off from those 52-week lows, but unable to make a meaningful move and then on the other hand you have names like an Axis or even for that matter IndusInd as well after its numbers. Help us analyse where within the largecap private banking space do you still find comfort?
If you look at large private banks versus PSU banks, on one hand you have for instance Kotak trading at about 2.2 times, HDFC Bank at about 2 times, Axis Bank at about 1.8 to 2 times depending on how you look at the book, and IndusInd probably around the same numbers.

And if you look at the growth outlook, HDFC is not really growing that fast. Kotak, temporarily its growth will kind of slow down. Axis, on the other hand, while it is growing faster than the system, it is kind of a tempered growth. Then on the other hand, you have the SBI which have books as clean as any private bank, balance sheet as strong, growth faster, and the valuation half of what the private banks for a similar levels of ROE give or take a couple of percentage points.

So, if you adjust for the ROEs for an SBI, clearly it still stands out as a winner and the same story holds for the Canara Bank, Bank of India versus the private sector banks. So, the private sector banks, yes, you need to hold them for their retail exposure to a certain extent which is probably Axis Bank to an extent, but outside of that still it would be the NBFCs and the PSU banks.


The new line of revenues which is opening up for InterGlobe via the overseas routes and that is why perhaps they have placed the big order. How much meaningful can it be? How meaningful in terms of revenues, international travel for IndiGo? Up till now, they have been dominating the domestic scene.
All the near destinations, like foreign destinations, clearly they will take market share given their pricing strategy and they said that they will have a slightly differentiated product as far as the ex-foreign routes are concerned.
Now, they are the only game in town as far as the domestic routes are concerned. They have a significant market share. They are also opening some kind of loyalty programmes. So, a combination of all this I think will add significantly to their revenues because of the foreign routes and IndiGo was and will always remain to be a positional investment. It is not one of those buy and forget kind of stories. So, I think in the current juncture, IndiGo looks good.

Given that for Swiggy as well, the valuations have been re-rated. Just yesterday, we were talking about that the IPO has got the shareholder nod and the valuations talked about over there as well are quite sky high. Just wanted to understand, where is it that you think that you need to scout for value? Do you think it is in the quick delivery format, a Blinkit versus a Swiggy Instamart, and who wins that is going to win the battle or is it just purely about market share?
Zomato is clearly benefiting from Swiggy's valuation and the fact that they probably will do an IPO sometime real soon, so that valuation is kind of rubbing off on Zomato's valuation, plus there is the Blinkit which is now actually driving a good significant portion of the overall Zomato's valuation.

A combination of these two factors, it is clearly about growth again in Blinkit, so these are not stories where you talk about value, these are the stories that we talk about growth. I think Blinkit is helping it so as well as Swiggy's IPO plans.

Have you tracked Aavas?
We looked on and off at it. As you rightly pointed out, it is clearly the numbers are not coming in for the stock and the valuation does not particularly support the numbers. So, a combination of these two left us on the sidelines. I will still wait for the numbers to come in.

I do not know if you are going to nibble in at all into Kotak Bank after yesterday's crash.
After yesterday's fall, today the stock is probably trading at about 2.2 times. Its ROA will probably come down by about 30-40 basis points and then if you adjust for everything, the ROEs, etc, will move down a little. So, is there a great amount of risk to earnings because of this RBI ban? I do not think so. Therefore, is there any scope for growth in the other parts of the business? Clearly, yes. So, clearly, it is time to start buying into Kotak at the current levels, yes.

Just to flag off what we were talking about, what the liquor segment numbers have been, be it Heineken and I was going through some of the other global numbers as well, looking very-very strong. Pernod Ricard is the one I am talking about. They as well talked about a healthy growth when it comes to their India business. What is the best way to play some of these stocks, although most of them are at their 52-week highs, be it Som, UBL, USL or for that matter, Radico?
United Breweries is looking good. They have also been benefited from lower barley costs, which are their raw materials. So, against this backdrop their EBITDA will grow really strong and if you look at the valuations compared to some of the other names that you mentioned, whether it is Carlsberg, etc, it does look favourable. So, against this backdrop and also with a hot summer, the volumes will pick up further. United Breweries at the current stage, I think you will see margin expansion which will support the stock price.