Nischal Maheshwari, CEO, Centrum Broking, says “the whole two-wheeler space seems to be in a good spot. This is the last to recover and we are seeing the recovery continuing out there and as the rural recovery happens and that has been one elusive part, as and when it happens, the two-wheeler space will continue to do well. There is growth in the sector, but the preference is obviously the other way around. Our top pick remains Hero Honda, Bajaj Auto, TVS and Eicher and that is the way we look at it and that is largely because of valuation, nothing else.”Yesterday there was a commendable recovery within the broader universe. The non-banking PSUs rallied hard and fast, PFC, REC, Engineers India saw very commendable recovery. What is your take on this pocket? Did the move come as a surprise?
Nischal Maheshwari: No since the FOMC came out and said that they will continue to hold on to these three rate cuts. Our calculation is basically that the first rate cut should be around June. I think that has been a positive trigger across the world and that is what India is also reacting to. The interest rate cut is definitely positive for the stock markets and whole markets across the world and India has also reacted positively to that.

If you look at the plans of Devyani, Westlife, all of them, the same store sales and growth etc have been slightly weakish for several quarters now. But that has not led to any kind of a scale back in growth or rollout of new stores by these companies. By when do you see all of that coming back?
Nischal Maheshwari: I would take this up in two parts. One is what is happening in the near term. Our channel checks do not say that any significant growth is coming back or bottoming out is happening. So, I think there is still going to be pain. Most of them have a negative same store growth (SSG), that is still very negative for the sector. On top of that, the valuations of all three stocks are very aggressive.

So, this is a combination where we do not have growth and very aggressive valuation. I am very sure nobody has made any returns in the last one year. If we look at the second side of it, most of the QSRs were doing very well because delivery experience has suddenly opened up because of Zomato and Swiggy being around. Multiple cuisines are available on the doorstep. They are all fighting for the same space and that is why we are seeing this kind of an issue.

The derating of these stocks will continue to happen because Swiggy and Zomato are pushing in and as they keep on going out in more cities, growth coming back to QSR is not going to be easy. So, this is going to be a bit of a tough challenge for the whole QSR sector.

Let’s discuss TVS Motors. Between the time when Ola Electric announced IPO plans and now as they are going ahead with it, even Ather has come back from Rs 1,200 odd to almost 2200, there is a big move in TVS Motors which has already come. Yesterday, they announced rewarding the shareholders with four preference shares for every one share held. At current valuations, how are you looking at two-wheeler space in general, particularly TVS Motors?
Nischal Maheshwari: The whole two-wheeler space seems to be in a good spot. This is the last to recover and we are seeing the recovery continuing out there and as the rural recovery happens and that has been one elusive part, as and when it happens, the two-wheeler space will continue to do well. Having said that, the stocks have run up quite a bit, whether it is TVS, Eicher Motors, Bajaj Auto, or even Hero Honda and all of them are now at the peak of their valuations, so that is the only challenge which I see.

Otherwise, there is growth in the sector, but the preference is obviously the other way around. Our top pick remains Hero Honda, Bajaj Auto, TVS and Eicher and that is the way we look at it and that is largely because of valuation, nothing else.