What is the right way to play the housing theme from here on? Is it the affordable housing developers or housing finance or ancillaries because there is a big opportunity there? This is a discovered theme that has already moved up in the last five years.
Deven Choksey: Housing is the next 25-50-year game because the amount of prosperity that we would be adding due to the growth that we are seeing in the economy could result in the first beneficiary sector which will be housing for sure. Now, whether one should buy one or one should look at everything in this space, I would say that there is enough opportunity in every area of activity. On one side, you have the real estate companies which are developers. Fortunately, developer companies today have an asset-light model, wherein they are basically more working on the projects and those projects are being sold very systematically under the RERA schemes.
On the other hand, there is the building material segment as a whole which covers about 250 different industries. I believe that this is one area one can probably keep an eye on with a very sharp focus– be it cable, be it lighting, be it cement, be it paints, ceramics or whatever other numbers that you can get. I think this particular segment is likely to show a significantly large amount of growth on a sustainable basis going forward. So, the building material segment is one focus area that we want to keep. Along with that, the steady return provider would be the housing finance companies. Well-capitalized housing finance companies would have a relatively better advantage going forward because 20% plus growth in credit lending to housing is seen in the next three to five years. So, from that perspective, some of the housing finance companies too could be a relatively good choice. The likes of Bajaj Housing Finance which is part of Bajaj Finance could be a real good choice because they can do prudent lending and they have scaled up this business over the last five years in a very systematic manner. We look at this space very carefully and also look from the investment point of view.
Six months back there was a very nice advertisement where Kirloskar Oil Engines put out, that in Thailand for the evacuation of huge volumes of water, they are deploying some massive engines. Why cannot we do all of that here in India? Do you see some big opportunities for select companies in that regard?
Deven Choksey: Yes, One line message is that in Maharashtra, unfortunately, the government and the administrators lack vision. The unfortunate part is that this financial capital of the country which contributes significantly to the nation’s kitty is being completely neglected and the infrastructure that is being created is what we wanted to have 25 years back. Whether after 25 years, this infrastructure will even survive or will have further requirements – we don’t know.
I would agree that the corporate sector holds the key here. Given a chance, they probably may build this city far better and far more equipped and that is where a business opportunity could arise. Unfortunately, neither the civic authorities will give up their power nor the government or state will give up their power and allow the corporate sector to take up leadership in these activities.
How scalable is the opportunity in power financiers and do you think that irrespective of that election outcome day lows and the kind of run-up that these stocks have seen since, are they still a buy?
Deven Choksey: From a valuation point of view, these companies are looking very clear. They are not expensive. The government has been allocating higher amounts of money towards infrastructure and one of the real beneficiaries is the power generation and power distribution area of activities be it the conventional source, be it the renewable source or be it the uranium source which is going to be now becoming reality after the Russia visit of PM wherein the nuclear power plant in association with Russia will be coming up in the country.
Overall allocation of the amount in the Budget is going to be only increasing and that is where some of the core focus entities like REC, and PFC kind of companies will mean a lot to these businesses. Fortunately, even though in the last year these companies have moved up and the valuations have been re-rated, I still think that they are not expensive and given the kind of the balance sheet strength that they have created, given the kind of liability franchise that they have, these companies would have eventually far better performance to talk about. So, the next five years could belong to lenders like REC, and PFC in India.
