We are ending 2022 and somehow we have seen a PE expansion of India. A lot of sectors have done well but what are the key themes to watch out for, which sectors or which themes you would essentially look at? Which are some of the themes that you think will be in focus next year?
I think some of the basic themes which I am looking at is probably the beneficiaries of lower commodity prices and lower inflation going into 2023 and obviously some of the sectors which can probably really get benefited from the domestic demand. If I look at some of these kind of sectors I would probably look at sectors like auto and auto ancillary where I feel probably you can see a lot of demand which is probably already started coming back in the passenger vehicle as well as the commercial vehicle space. I think going into 2023 even two wheeler companies can do well.
Given the way things are shaping up for the sector and also with regards to the input prices coming out for some of these auto and auto ancillary companies, the margins would more likely be stable. You would see some amount of volumes coming back for this sector as well as some kind of margin tailwinds for the sector.
The other one probably again looking at the way costs have come up specifically on the pet coke and thermal coal side is cement and construction sector. Construction may include infrastructure and real estate both.
Obviously this being a pre-election year you would see the government having a push towards spending and that government spending has already taken a uptick in the last couple of years. I think this will continue in the next year also and that will give a lot of emphasis on construction and infrastructure which will probably help the cement sector as well.
So I think cement sector is the another sector which I feel we can be bullish about in 2023.
From the entire cement pack I think you are quite positive on , what is your rationale and what kind of upside do you see on this one?
I think cement companies have done well and Dalmia Bharat has been a beneficiary. What I have also looked at is probably the recent acquisition which they have done of the Jaypee Cement Group. I think that is a really good acquisition they have done because this gives them entry into the central India markets which was not a part of their geographical presence.
This also gives them a bit more diversification into the cement sector because central India as a market is probably pretty buoyant and it is growing faster than the entire industry. So this region and their exposure to this region obviously will give them a benefit going into selling volumes.
Thermal coal has probably not moved down so much but then like I said if things stand good globally, then coal prices can come off and that is why I feel thermal coal prices should also cool off in 2023 and that would probably give further tailwinds to the cost for Dalmia Bharat.
Apart from that obviously being eastern region focussed player it has been growing faster. So on the demand or on the volume front I do not see any kind of headwind coming in for the company into 2023 as well.
This is a company which is probably now currently at 45-46 million tonnes of capacity and it is actually looking like moving in a direction to become a large company. So probably as of now the valuation it is trading at is probably at a EV per tonne valuations of around $83-84 per tonne which I think is not justified because if you look at any larger cement company they all trade at upwards of $100 per tonne. So there is some bit of valuation comfort also at these levels. I feel that given the way the sector has shaped up it is quite positive for Dalmia Bharat.
You also gave us a midcap name, . Can you elaborate more on that?
I am bullish on auto and auto ancillaries going into 2023 and this company again is a niche company because this is one of those companies whose is into the aesthetic markets of auto ancillaries or auto. They generally make aesthetic parts for passenger vehicles and two wheelers and when you are looking at this kind of a business, again there are not many organised players who are very large in this business and they do not have competition in the listed space as of now.
Now what this company is doing is focussing on couple of really high value products going into 2023. One of them being a cover for probably the screen which you are seeing on a passenger vehicle. So those are GPS screens now. I am looking into the newer automobiles mode and more of them are having these aesthetic aspects coming into picture whether it is external chrome plating or whether it is internal moving to switches or having these digital screens in place, whether it is the speedometer or whether it is normal GPS screen or a music screen which you have seen.
I think the products or the categories which SJS is into are seeing a lot of increased demand and penetration and that is also helping them to increase the kit value for a vehicle which they are actually serving today. So that I think is going to help them.
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