If the Indian economy can become $5-6 trillion, Paytm & Zomato can have $9-10 billion market cap
Hiren Ved revealed that he is very bullish on Paytm, Zomato and Policy Bazaar, the three new-age companies. He is also bullish on Info Edge which, apart from an internet business itself in the form of Naukri, has a sizeable holding in these companies. He pointed out these companies are the FMCG companies of yesteryear and have a long way to go.
“These businesses have a long runway for growth. Just like the FMCG companies in the ‘80s had a long runway for growth, right. I cannot see too many businesses compounding at 30-35% top line“.
He explained that these business have the benefit of operating leverage and can compound their top line and profitability for the next couple of years.
“The operating leverage should kick in. They are becoming more disciplined about their capital allocation. They are focusing on profitability and cash flows and they have leading positions in their respective sectors. It is a duopoly now between Swiggy and Zomato and Zomato has a slight edge over Swiggy. In payments, Paytm has created a fantastic platform and everybody is realising the value of payments. Though it does not make great money, it makes some money, but what you cross sell to your payments customer is where you actually make money and that is what Paytm is doing by lending. There are eight-nine NBFCs behind that, but they have the platform and the data to lend to these individuals and they are building a book and they are making money on that,” he added.
Hiren emphasized that Zomato and PayTM are nearing a market cap of almost $9-10 billion which, though seemingly large, is nothing in the context of the local and global economy and the scale of opportunity available.
“If we are talking about our economy being $5-6 trillion, what is Rs 50,000, 60,000 70,000 crore? We have to grow out of these numbers. We are not in the 2000s where the Rs 1 lakh crore market cap seemed so big. By international standards, our largecaps are midcaps, even Reliance at over Rs 17 trillion. The real big caps in the US have crossed a trillion dollar in market cap. You have to see that if for the whole of the country, there are going to be only two food delivery companies, then the opportunity is much bigger and today maybe a 100 million customers out of 1.4 billion are using a service like this. Five years out, 200 million, 250 million of the middle class households might use that and then the frequency of use might improve,” he stated.
Sundram Fasteners is a proxy for playing the boom in Electrical Vehicles
Hiren revealed that he is very bullish about electric vehicles and their ecosystem and infrastructure which is being driven by the government at this point in time and that he is playing the theme through Sundram Fasteners which has $400 million of orders for supplying EV.
He pointed out that Sundram Fasteners is a great manufacturing company with all 17 of its plants having won the Deming Award, which is the highest quality award. The commercial vehicle fastener business is just 20% of the business. They do fasteners for windmills which is an indirect way to play the energy transition. Sundram Fasteners has given a CAGR return in last 20 years of 20%, which is very good.
L&T has changed dramatically & is becoming an asset light business
AMongst the large-cap industrial companies, Hiren Ved said he would put his money on L&T. He pointed out that from being an asset owner, they are again becoming an asset light business.
“They are in every area that we are bullish on, whether it is railways, defence, they are also doing stuff in hydrogen, oil and gas EPC, renewables, building construction and they are still one of the few companies who can do complex, large infrastructure projects,” he added.
He also stated that 35% of L&T’s value comes from investments in businesses that are not working-capital intensive and are cash flow positive and compounding at 15-20% a year. He is also stated that he is not bearish on tech and that it is only going through a slowdown patch which will change sooner than later.