Kunj Bansal on why he has put his money in PNB Housing

The lag for the compression is over in the stock. Growth numbers continue to be good and over the last 2-4 quarters -- growth has been in the range of 20-30%, Kunj Bansal, Sarthi Group, tells ET Now.

Edited excerpts:

How would you approach the multiplex stocks? Is this dip a buying opportunity because the only fear here is what happens if after Maharashtra, other states also get to implement such a move? In that case, you will have to rethink whether to buy multiplexes at all or not?

Yes. Whenever we invest in any company, there are two kinds of risks. One is the possible risk that could arise. Just to clarify with an example, we have seen housing finance sector underperforming for the last seven, eight months or so. This was obviously because of the interest rate rising, their NIMs were seen to be compressing and as a result, such business models would come under pressure at these points of time.

Coming to multiplexes, this is a risk wherein the possibility of their food prices being controlled is not unseen but the probability is very little. It is a low probability high impact event and this changes the whole business model of the company. Let us keep in mind that when we invest in multiplex stocks, we look at the revenues from multiple sources, the main two of which are the ticket revenues and F&B revenues.

F&B revenues are anywhere in the range of around 30-40% for all these companies. If that is being attacked by one of the major states, there is a chance that it could get extended and these days anyway too much of hyperactivity by NGOs, too much of activism by consumers and courts means it is a significant business risk. One should wait before taking a fresh exposure in this sector and stocks.

It has been a mixed bag but given the concentration of positions within IT, how do you think Infosys may perform? Could that bonus announcement could keep it afloat today?

You always try to hand out a lollypop to compensate for few other things. In case of IT sector, it is not only the absolute result of a single company, it is also the comparison between the two biggies -- TCS and Infosys – that comes into play. In comparative terms, Infosys numbers are not as great as TCS numbers are being seen to be. So, the stock could underperform, despite the bonus. It might have short term bump up although the stock does not look fully valued. The results are not really great unless we see significant revenue growth in the coming quarters.

Sentimentally, we could see DRL take a step back considering they were really pegging and banking on the Suboxone launch and we all know how critical this one was for them. Considering that the approval came by only last week or 10 days back, do you think this dip should be bought because eventually DRL will win when they appeal in a higher court. Do you think this is an opportunity to actually sell if you bought after the approval?

Frankly, I do not track DRL so closely that I could give my view on the stocks but on the face of it, this development does seem negative.

What was your last big acquisition?

These questions are really difficult to answer because it depends on the investment horizon and perspective. Since you want a specific name -- PNB Housing is one name. This is because after a lot of speculation over the last few months, the existing management has officially announced that they intend to divest 51% stake in PNB itself and the private equity partner. The overhang is over, hopefully they should be able to divest it at a premium.
Also, valuation has come down significantly because NIMs were seen to be coming under compression because of rising yield. There may be a bit more of the yield hike going up from here but the lag for the compression is over. The growth numbers continue to be good and over the last 2-4 quarters -- the growth has been in the range of 20-30%. So that is the investment that we have made.

Why is a stock like Gruh Finance still outperforming the HFC space? HFC stocks have seen a time wise and a price wise correction but the standout gainer is Gruh Finance. It is trading at a price to book of 13-14 times and a lakh rupees invested in Gruh Finance nine years ago has now become Rs 80 lakh. It was expensive 10 years ago and it is expensive today also?

In the housing finance sector in last one year, PNB and CanFin are down about 30-40%. A few other stocks in the housing finance are similarly down and a few others are flat. Gruh Finance is the only stock which is up about 30-35% odd in last one year. It is true that it was expensive earlier and even more expensive today.

Frankly, I do not have an answer as to why this happens, the only possibility I can think of is that it is a smallcap, low liquid stock and probably the demand for the stock is continuing to go up. But I have no answer for why it is going up. The financials of other housing finance companies are not bad in comparison to Gruh Finance.

What are you avoiding in the smallcap space?

Let me analyse the market. Today in terms of largecap indices, we are not almost at life highs which was touched on 29th January, almost six and a half months from now. Now, while it looks like the index revived, it is only the largecap indices that have revived -- Sensex and Nifty -- not the midcap and smallcap indices. Within largecap indices also, there are very few stocks or sectors. While they might be covering a large part of marketcap of the listed space of the Indian market, in terms of the number of stocks and sectors, it is very limited.

In terms of sectors, it is the select private sector financials, not the broader financials followed by select IT, followed by select FMCG that are doing well. Only three spaces which have moved up in this six months of journey from earlier high to current life high. Many more have underperformed. Commodities, which was a rising star of the 2017, the oil stocks, cement, metals stocks have all underperformed. Out of these, metals is something I would stay away from. Obviously, there is no point discussing the future of telecom stocks as one needs to stay away from that sector as well.