ZEEL will continue to struggle at current levels: Pankaj Pandey

“Trent obviously has seen one of the most superlative growth. I think last year the CAGR has been about 36 odd percent and so which is why they have an outlier in the entire retail as a pack and especially this Zudio format for them has been doing very well,” says Pankaj Pandey, Head Research, ICICIdirect.com.

Just wanted to get your thoughts in on the NCLT admission, IndusInd Bank’s insolvency plea against Zee. I am guessing this would be a bit of a negative news for Zee.
Yes absolutely. Even if you look at the last quarter, the ad revenue growth has been quite tepid while it is expected to improve. But when you also look at the working capital, it is very difficult to figure out if the company is putting a lot of money in the movie business, how the revenues will pan out and then you have a lot of these linkages with the group companies which is where things are not very clean or we really do not have enough clarity in terms of who is going to share that burden. So, from that perspective, while the merger is the only positive thing to look at, but I think you still have a lot of challenges with the company and which is why the stock has really not been performing like what one would have expected post merger. And I believe that it will continue to struggle at current levels. When we just look at how essentially some of these e-commerce companies have fallen from the levels, are you looking that they are just trying to find their valuation? They may be a buy, they may not be a buy, but it is the first time in two years that you are seeing these sort of companies getting listed, this sort of supply coming in shares. Do you believe they are in a space where they are just trying, the market is trying to find a proper PE or a price to sales multiple for them?
I think till the time we really do not have a stable period of say revenues and also margins and profitability, it is very difficult to pin all the hopes on the future improvement in terms of margins. And I think the other challenge is that when you look at for some of these companies, I mean it is not a space, except for Zomato which looks from the perspective that it is a habit forming segment which they are into and obviously they could have some bit of a pricing power. But whether you look at say Delhivery or a lot of other names, I mean it is very difficult to pinpoint or figure out that a B2B business like Delhivery will continue to have or will have margin or pricing power. So that is why we are still not very clear in lot of these names and which is why we have been not really tracking a lot of these names.
We still need some bit of stable numbers to get clarity and to look at how things will pan out in future so which is why we have been avoiding this space for quite some time besides obviously valuation is still rich.

What will be your view as far as IT pack is concerned? We saw a rally in the largecap space after the numbers till now. Do you think the time has come to look at some of the midcap ones?
On the IT side according to me it is probably some time to book profits because see, when you look at US as a market while the spends or TCVs have been good for most of the companies, quarter on quarter growth has been on expected lines, margin expansion of say about 100 odd bps for some of the companies was on expected lines.

But I think the challenge is that if the US is going to tighten or continue to tighten and your jobs data and inflation is not really coming on expected lines, then our sense is that probably one needs to be a bit cautious given the fact that we have seen some bit of a rally in the IT as overall pack. So, from that perspective, I will be slightly cautious at current levels. But having said that, whenever this volatility or clarity emerges from US market, then IT could be one of the best contra plays to look at. But till that time I think it is probably a time to book profit in some of the stocks which have rallied.

I do not know where your biases lie when it comes to this entire retail play, but ABFRL versus Trent if you could stack up both and tell us whether you are recommending a buy on any of these at this current juncture?
Trent obviously has seen one of the most superlative growth. I think last year the CAGR has been about 36 odd percent and so which is why they have an outlier in the entire retail as a pack and especially this Zudio format for them has been doing very well.

But compared to that when you look at ABFRL or number of other names things have been softer for them. One, because overall we have seen good appreciation or the price hike has been quite aggressive and our sense is that probably things will turn softer going forward for most of these players. And obviously ABFRL also competes with Reliance Retail in terms of acquiring niche brands and trying to do a massification of those brands and so I think Trent is something which is quite expensive. I mean, when we look at say between Shoppers Stop and Trent, Trent is nearly three to four times expensive compared to what Shoppers Stop is trading so that is one which continues to do well so which is why we like that.

But any kind of a correction will be a better buying opportunity. Shoppers Stop is another play which we like. One, the valuation is quite attractive. The other is that while we have not seen a very good set of numbers but our sense is that as in when your value play from the perspective that if your homegrown brands are going to do well, so that will lead to better margins for the company and which is why I think Shoppers Stop and Trent look good.

I think the rest of the other players probably will have some difficult time given the fact that price has been quite high and probably the footfalls or the kind of revenue per square feet may not really match up to the kind of expectation what one would have.