Asian Paints Delivers a Strong Quarter
Discussing the impressive Q2 performance of Asian Paints, Tandon noted that the company’s double-digit growth and earnings beat suggest that it may be turning a corner. “Well, one could certainly say that,” he remarked. “Frankly, one could have anticipated that the results will be good simply on the fact that there has been a management change in Birla Opus and that itself gives you the indication that the competition has not managed to breach the fortress Asian Paints.”
Tandon pointed out that despite rising competition and concerns around high valuations, Asian Paints’ volume growth stood out this quarter. “The reason for staying away from this sector was two-fold,” he explained. “One is that there are too many new players coming in with a lot of capital and therefore the competition intensity would have increased and along with that was the challenge of the valuation that Asian Paints is far from cheap. But the first one now seems to have somewhat receded and from that perspective one major overhang on the stock is perhaps gone out assuming that this trend can continue.”
Bullish on Commodities, with a Domestic Tilt
When asked about his outlook on commodities, particularly steel, Tandon maintained a constructive stance. “So, in general I am bullish on commodities,” he said. “Unfortunately, the numbers that are listed in India are very few. You basically have steel and aluminium and I think both of them, especially aluminium has had a strong run, therefore looks a little toppish. Steel is more domestic because of the protection.”
He highlighted that international steel margins remain weak, making domestic-focused players relatively more attractive. “Some of the other commodities are ones that one could look at, things like coal, etc, which have not done much in the recent past or, for example, copper and zinc and so on where the ways to play it in India is severely limited unfortunately.” Summing up his stance, Tandon confirmed, “That is right,” when asked if he remained directionally bullish. Defence: A Long-Term Structural Theme
Turning to the defence sector, Tandon acknowledged the robust order books across companies but expressed concerns over execution. “Well, clearly something that has a very strong order book. Unfortunately, the execution capability much to be desired for most of the leading companies,” he said. He noted that smaller firms were often better at delivery, while large manufacturers like HAL continued to face challenges.
“We still have problems that we are dependent on imports for most of the critical components whether they be the electronics or the engines and so on,” he observed. “But broadly overall defence will remain a theme for many years to come, not only domestically but across the world.”
Tandon also cautioned about valuations, noting that Indian defence companies trade at a premium to their global counterparts. “Most companies have been somewhat re-rated,” he explained. “If you were to look at Indian defence manufacturers, the big ones, they are actually trading at a significant premium to many other companies around the world including their own suppliers or partners globally. So, from an Indian perspective, you should actually continue to hold on to them obviously. But if you are looking to make money, it might be a good way to look outside India and not just restrict yourself to India.”