Among telecom companies, Vodafone biggest worry for bankers: Dipan Mehta, Elixir Equities

At a time when investors are positive about the telecom sector and hoping that consolidation would lead to higher ARPU, SC upholding Centre’s demand for Rs 92,000-crore dues has come as a challenge for the sector as a whole. Dipan Mehta, Founder & Director, Elixir Equities. Excerpts from an interview with ETNOW.

The Supreme Court has upheld the Centre's demand to recover Rs 92,000-crore dues from telecom companies. How are you looking at the impact on telecom companies?
The banking sector's real concern is Vodafone as its debt, the resources available to repay that debt and its present performance are not encouraging. Bharti would manage the particular hit on their financials but it does create confusion and uncertainty as far as telecom stocks are concerned.

At a time when investors are positive about the telecom sector and hoping that consolidation would lead to higher ARPU, this challenge has come up for the sector as a whole. From investor perspective, it is best to remain on the sidelines and understand what is the exact liability, how much has been crystallised and how much has to be paid in what period of time. Also the steps the companies are going to take to pay off all these liabilities have to be seen. It is an uncertain period for the telecom stocks and in these uncertain times, investors may avoid the sector as a whole.

What is your take on Maruti’s earnings?
Disappointing. In line, but disappointing. Mr Bhargava was listing out the reasons for such tepid growth rates and those reasons are going to change immediately. What has happened is a reset as far as cost and maintenance of vehicles are concerned and such reset on the higher side takes time to get absorbed. Therefore, you may have better monthly numbers because of base effect and Diwali season but the long-term growth rates need to be questioned as far as the passenger vehicle industry is concerned. They have to deal with shared mobility challenges. On the whole, our view on automobiles and four wheelers in particular is not positive. Although, we have investment in Maruti as a measure of disclosure but at every rise you would look at lightening our positions there. The best days for Maruti are behind them. Going forward, it is going to either an in line or an underperformer whichever way the auto industry recovers.

Why do you think there was a massive recovery in Maruti's stock price?
I do not have an answer to why a massive recovery would come in but we can look at the fundamentals purely; In the short and medium term, the street would be expecting good numbers coming for the months of October, November and also a mild recovery in the second half. However, the long term fundamentals of the industry have been impacted.

Going forward, it is going to be a slower growth for Maruti than what we have seen in the past. Given the valuation at which Maruti trades, there are better choices available to investors to ride the consumption theme. Maruti had a great run when they were trying to fill up the product gaps in their portfolio and that entire process is over. Going forward, one should not expect the rapid rollout of new models which was there in the years beginning from 2013 to 2108 or so.

Now, there is a challenge of electric vehicles and they are going to transition to it. When we are valuing a stock considering an investment, there are things investors look at. way ahead into the future. For example, when you are buying an FMCG company like HUL, we require that the company will be available selling its products 10 years down the line too . In case of Maruti, the future seems uncertain because 10 years into the future, electric vehicles may become mainstream. At that point of time, whether Maruti will be a relevant and a dominant player needs to be seen. All the long-term threats and disruptions get priced into the present stock price. If you consider that, the entire picture for Maruti does not appear to be that promising. The risk-reward does not favour the investor at this price point.