Why RIL is moving now & where ITC is heading

Currently ESG funds would not invest into ITC’s cigarette business and as a result there is lack of participation in the market. A demerger and separate listing of FMCG business will see significant rerating of ITC, says Deven Choksey, MD, KR Choksey Investment Managers. The stock to talk about is Reliance given the kind of move that we have seen over the last couple of sessions. What is making the elephant move now?Fundamentally, the company remains as strong as one can expect. Among the respective verticals - -oil to chemicals (O2C) vertical which included specialty chemical and polymer segments is really having a very good time. They are among the largest manufacturers of some of the polymers in the world. Most of the time, they are the ones which open the prices up, given the strength this company has and given the fact that the demand for this particular polymer has started surging along with the strong commodity prices. They are going to show relatively better performance going forward. This year onwards, we will be looking at the company more systematically and differently across different verticals. Coming to the other verticals, the Jio vertical is progressing well. The company is now showing higher traction and the growth part of the story is emerging very strong. The retail vertical is showing good signs of growth due to the online offline combinations that they have created. All put together, Reliance cannot be a left out story. It took its time to have a time correction last year and now we will see relatively higher numbers and probably that is where support in buying is coming into Reliance. What are you anticipating on ITC?ITC continues to face general challenges. Apart from having a very strong franchise in different verticals -- be it paper or Paper Boat, be it FMCG segment or business. We do not count the cigarette business in it as much but it is a cash generator for the company while the hospitality segment of the business has been hit. The agri part of the business is doing well. We can see that in different verticals of ITC, the business conditions remain quite upbeat and strong for them except for the hospitality sector. One has to see if the ITC management is seriously considering demerger. The demerger of some of the verticals will have an impact in the holding operating company structure and that is where some of the ESG funds would probably find interest in this company. Currently those funds would not invest into the cigarette business and as a result there is lack of participation in the market. But should the participation increase because of this particular demerger, the company on strong fundamental merits will have a significant amount of rerating in the marketplace. Let us wait and see what happens.What is the best way to bet on the steel cycle uptick – Tata Steel Global, JSW Steel a converter or SAIL which is PSU?Most of the traders today would like SAIL at this point of time because of the comparatively discounted valuation. But in my view point, Tata Steel remains the best company by far. There are a couple of reasons -- the strong amount of cash generation in the sub-cycle that they are having is basically asking them to deleverage their balance sheet very systematically year after year. Second part, the expansion project which was shelved till now, is now being taken up and somewhere in FY24, this particular project could probably go live. Should that be the situation, then Tata Steel would have the growth to talk about year after, in case of a good cycle. Last but not the least, the improved commodity cycle is also helping them in the other parts of the world, particularly in Europe. Given the cycle, they are taking the advantage of the higher valuations coming through that particular vertical as well. So I would be comfortable playing Tata Steel at the current level though the FOMO traders would probably look into PSU kind of a company because it is available at a cheaper valuation.

from Economic Times https://ift.tt/2SLpWo0