What started off with India Mart and InfoEdge, has now spread to . Where within these quasi IT platform plays, do you find opportunities to buy afresh?
On one side, they definitely have a higher ability to scale up the business given the SAS kind of approach. The software as a service platform approach is definitely helping most of these companies. But what is the most unique part of this entire proposition for even a company like or for that matter Ola, Uber? They basically build their platform to create an asset light model. On one hand, they would aggregate the respective products like in the case of transport, they would be aggregating all the demand and on the other side, they would be supplying the vehicles, in the case of Ola and Uber. In the case of Zomato they would be providing these particular services to the contractual arrangement with the people who would be providing the bikers and bikes to deliver the food items. So all in all put together, I think this business model has a higher amount of scalability.
Each and every business we are seeing does not have a similar approach. The QSR format definitely demands a higher amount of traction also because of the fact that they have been aided by the likes of Zomato, Swiggy as far as the delivery mechanism is concerned and they are developing their own omni channel business models as well, which is on the ground store as well as online delivery. From this perspective, these companies are likely to see a higher amount of growth traction.
Plus, we are seeing the change in the demand pattern in many cases. Many of the delivery making companies are finding a different kind of a customer segment emerging for them and for companies like Jubilant, the young millennial customer segment is seeing a very strong rate of growth. So yes, there are opportunities but I am not too sure whether at the current price, one would want to buy them.
Maybe one will have to keep on looking at opportunities outside the listed bucket, maybe in the private equity markets where one can enter such stocks through AIFs. That is a slightly better approach at this point of time particularly for investors into SAS companies.
Where do you stand on steel stocks because stock prices will correct before steel prices start correcting? Do you think the market is convinced that the uptick in steel prices are here to stay?
So let us look at this entire situation from a demand point of view. The demand scenario remains extremely strong. India specific demand, Asia specific demand and demand from the US and Europe are strong as they are again showing good signs of growth. They are spending money on infrastructure and that is a welcome step.
For the first time probably in the last 10 years, this kind of a situation is emerging where countries like the USA want to spend money on infrastructure. So the demand side remains extremely strong as far as metal and commodities are concerned. On the other hand, the world has not seen greenfield projects in the last 10 years. China has some of their capacities because of environmental reasons. That is also adding to a subdued supply situation. Given the higher demand and a subdued supply side situation, commodity prices are bound to go up.
Also, looking at the cyclical behaviour of the commodities, I would think that the high input costs because of energy prices would have also caused metal commodity prices to move up and that is one of the reasons we have seen such a sharp rally in the metal commodity prices and the resultant stock prices.
Some amount of postponement of demand might happen and that could be one of the reasons why prices have started softening. From the stock specific point of view, most of the companies probably have a better quality of the growth in the balance sheet. They are in a position to retire their debt and at the same time the ability to take up the newer projects going forward — either the brownfield or maybe the greenfield projects — would be very high. One would remain optimistic about the scenario for metals as a commodity. Some correction in the price is justified and could be a buy opportunity at lower levels.