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  • Large portfolio size gives flexibility to dwell into smallcap stocks

    Mr. Rajeev Thakkar's interview by The Economic Times, December 10, 2015

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    In an interview with ET Now, Rajeev Thakkar, Parag Parikh Financial Advisory Services, talks about his portfolio of stocks. The expert also shares his views on various other stocks and sectors. Excerpts:

    Large portfolio size gives flexibility to dwell into smallcap stocks
    Thakkar says that one should buy into banks which will not get into trouble over next 10-15 years; Maharashtra Scooters is a play on Bajaj Auto, he adds.

    ET Now: What is your take on Maharashtra Scooters?

    Rajeev Thakkar: Maharashtra Scooters is a play on Bajaj AutoBSE 0.76 %, Bajaj Finserv, and Bajaj Holdings. As a business group, broadly, we like the group. We like the passion of Rajiv Bajaj in terms of the two-wheeler play and execution over there. What Sanjiv Bajaj is doing in the financial services play is good. We have been buying Maharashtra Scooters or we have bought it when the stock price was at almost 20% of the underlying investments. Of course, prices moved up now.

    ET Now: So what is the value of the underlying investment according to you?

    Rajeev Thakkar: Underlying investments should be north of Rs 4000 a share. As the underlying companies do well the intrinsic value also moves up.

    ET Now: Do you think your fund has a huge advantage purely because of the size. Most of the other large-cap funds may not think of buying a company which has a market capitalisation of Rs 1,600 crore. Is that the uniqueness which you bring on the table right now, you can go global and you can buy Indian micro caps?

    Rajeev Thakkar: It gives a lot of flexibility.

    ET Now: If I scan through your other holdings, there are stocks where the PE multiples are north of 25. There are stocks where PE multiple are south of 10. So obviously you do not look at PE multiple as the only benchmark for buying a stock. Stock does not have to be cheap just for you to buy it?

    Rajeev Thakkar: What is the book value is again a question. So, in some cases price to book may be lesser than one, but that book value in itself is suspect because provisioning has not been adequate and so on. In the banking space we see it as one of the large sectors with strong licensing entry barriers. 70% market is still with the public sector guys. Overall economy growing nominal, money supply growing at may be 13-14%, plus market share gains... so there is a long runway ahead of these banks. Essentially, you want to buy banks which will not get into trouble over next 10-15 years.

    ET Now: You do not worry about the disruption. The way we are banking today will change. The way we will bank tomorrow and the way children would be banking will change. The advantage of reach branch may not exist, and smaller banks of course will be able to adapt it in a much cheaper manner. Is that a disruption which is staring on your face?

    Rajeev Thakkar: The basic function of a bank of giving your deposit or borrowing a store of value or a safe keeping place has not changed over the years. We have had many changes coming in introduction of cheque clearances, electronic banking, ATM networks and so on. The mobile wallets and payment banks and devices and all that is another change, the basic functions will not change. Also, some of these disruptions are happening in the space of making payments that are more convenient rather than changing the basic nature of deposit taking and lending.

    ET Now: So, will PSU banks suffer more? Will good private banks be able to gain more market share?

    Rajeev Thakkar: I have a slightly different take on this. Payment banks or payment wallets will address the market which is not in the formal sector right now. So if you look at the biggest case of Paytm, for example, the mobile wallet, it is actually making electronic payments for a cab service where cash was paid earlier, it has not replaced my cheque writing so far.

    ET Now: One of your other interesting holdings where clearly the organised sector is consuming more is Zydus Wellness. It is a market leader in the sugar-free market, but their non-sugar ventures are hurting them. Why do you like Zydus Wellness and then I will give you time to defend their non-sugar business?

    Rajeev Thakkar: Sure. People say India is the diabetic capital of the world and the unfortunate part is once you get diagnosed with diabetes and sugar goes into the restricted category people who have a sweet tooth look for alternatives. Whether it is a natural alternative in terms of stevia leaves, or aspartame or sucralose, Zydus is present in all three spaces depending on the preferences of the consumers. It clearly is the market leader and early mover in the space, and has good distribution reach. I think that has potential of growing well over the years. It has been struggling in the face pack and those kind of categories. I think over a period of time that will be a smaller portion of their overall business, main business.

    ET Now: But the main business is growing. What about margin of safety, you dwelt on that aspect margin of safety, when you buy a stock look at the downside first before you chase the upside?

    Rajeev Thakkar: If you look at the consumption space, I think it is one of the cheapest stocks around.

    ET Now: On a relative basis. What about absolute?

    Rajeev Thakkar: Absolute also, I think somewhere about 30x earnings where it is a market leader where the base is extremely small. So today you have a huge population which is undiagnosed, the people may have a diabetes condition but they do not know. The moment a needle stuck in their arms, they become consumers of the company.

    ET Now: And then automatically you switch from cane sugar to sugar free?

    Rajeev Thakkar: Yes.

    ET Now: Is that the turning point according to you?

    Rajeev Thakkar: That is the turning point. We have this in a lot of small companies or companies with a small base in the consumption space. Whether it is Agro Tech Foods or whether at one point in time Tanshiq which was just coming into the organised jewellery space and so on.

    The original article could be seen here.

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