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In the first half of last week, Paytm went one way – down, down, down. Now Paytm is only going one way – up, up and up. Is this a good time to buy into this fire sale in the Paytm stock? If you get it right, then this could be a doubler in next two-three years; if you get it wrong, it could be down by 30% from here?
Dipan Mehta: I think that is a fair risk-return profile. I think that you are taking a 30% knock for doubling, but if Paytm was solidly profit making and its business model was understood better, as also the fact that even prior to this, there were certain challenges, the main driver for Paytm’s earnings was their loan syndication business and over there also there were certain changes in regulation which prevented them from raising loans, especially unsecured loans and we are seeing this entire move of the RBI to try and curb unsecured loans to retail.
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To an extent, Bajaj Finance also got impacted by those RBI regulations. So, I would be a bit cautious in Paytm. Considering that our view on the markets is negative to slightly cautious, I would just avoid companies where there is so much uncertainty and keep the powder dry to buy great quality businesses which may be available should there be a correction.
I want your take regarding QSR and this packaged food space. There are a few IPOs which are in the pipeline that got the Street excited. In Devyani, a big block deal happened this morning wherein Yum! Brands offloaded the stake and then there is a news flow on Varun Beverages. Within QSR and packaged foods, what are your top recommendations?
Dipan Mehta: None at all, I think.
Because of the valuations or because of healthy habits? You are a marathon runner.
Dipan Mehta: No, no. I am a marathon runner. But certainly, we have investments in QSR, have investments in Devyani, which has not done well for us. In the past, I owned Jubilant FoodWorks also. I think Varun Beverages worked out really well for us. But, it boils down to valuations and these QSR companies have disappointed for two straight quarters in a row.It is not that their stock prices corrected significantly to account for those earning disappointments. When you look on a trailing 12-month basis, these are like what, 80 times, 90 times, 130 times trailing 12 months. So, you cannot make money when you are buying a stock at 80-90 times trailing 12 months, however good the prospects are and that is the reason why we want to be a bit cautious on the entire QSR space. When there is some sort of alignment as to what their profitability is and what their valuations are, then these companies are interesting.Typically, these QSR companies tend to capture the imagination of investors because you can forecast the earnings 10 years into future easily stating that these companies will be around for the next 10 years and they can grow at 10%, 12% easily and they keep on expanding their network, and changing habits in terms of food and rising spending, rising consumerism will drive their growth. Okay, so far, so good. But every two-three years they have these soft patches which last for three-four quarters or so? This could be a soft patch which lasts for three-four quarters but the valuation and the prices have not corrected and that is the reason for my advice to stay away from the QSR space.
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