Quick commerce sector to face increased competition, but Zomato and Swiggy poised to maintain lead: Dipan Mehta

"In fact, if they go for IPO for Reliance Retail and for Jio, then certainly the stock price can correct even more as more and more holding company discount will come into play," says Dipan Mehta, Director, Elixir Equities.

The talk this morning of course is HDFC Bank. Couple of brokerages have actually decreased their weightage on HDFC Bank in their core portfolio schemes. You think the concern is not just the run-up which has already happened in the stock but also the quarterly updates which were a little bit of an eye-opener wherein the CASA deposits have declined and advances also showed just about a modest growth?
Dipan Mehta: The disappointment with HDFC Bank continues and now there is so much of choice in terms of banks and so many banks and NBFCs are growing much faster than HDFC Bank as well and perhaps the only reason to own HDFC Bank at this point is because of its very high weightage in the Sensex and Nifty and if you are benchmarking against them, then you have to invest in HDFC Bank. But by and large, from individual investor's perspective, it is best to avoid HDFC Bank and if you are already owning shares as we do, then we should be looking at exit opportunities.

Overall, in the banking sector, there could be a trading play as liquidity may improve post RBI policies in 2025, maybe interest rate cut. So, these are triggers for the banking sector, the Bankex to do well maybe in 2025. But when you look beyond on a medium to long term basis, I think that banks per se may not deliver the superior returns they have done in the last decade or so. So, investors must think in terms of being underweight the banking sector in the medium to long term.


Help us with your take on Reliance as well because just today we have two of our brokerage notes coming in wherein Jefferies believes that the valuations are quite reasonable, the stock is trading at the cheapest valuation since the Covid shock and even Bernstein says that they believe that 2025 will see a recovery cycle. In 2024, Reliance has done actually nothing. But for 2025, what is your outlook?
Dipan Mehta: See, I think that there are no really triggers to buy into Reliance Industries. And now the news is coming that for Jio, they may do an IPO and not a split of the company, which means that more and more holding company discount will come into Reliance Industries and that is not good for minority shareholders. And apart from that the O2C business remains highly cyclical. And the way we are seeing disruption taking place in the auto industry and the spread of EVs, that is certainly going to impact longer term impact on fuels and crude oil as well.

So, I am not that positive on Reliance Industries. Again, same thing like HDFC Bank, because there is such a large weightage in the Sensex, Nifty, it has to be a must own stock if you are tracking these indices or benchmarking against that, but as such there is no real trigger to buy into Reliance Industries. In fact, if they go for IPO for Reliance Retail and for Jio, then certainly the stock price can correct even more as more and more holding company discount will come into play.

So where is it that you think that growth fillip is going to come in and we are going to see a slice of that this earnings season as well and where you have some amount of valuation comfort at least.
Dipan Mehta: Nifty does not have to go higher. It can go sideways. It can go lower also. We kind of assume that after nine years, every year, Nifty has to go up. But let us just wait and watch. We are entering into a very important earnings season. So far, it has been good. I must admit that it is better than my expectation. Auto numbers are better than my expectations.

Some of the real estate sales which have come through are decent and jewellery sales also have picked up. But typically, the positive news flow comes in the beginning of the quarter and then the bad news starts to follow afterwards.

So, let us see how actually things play out. But by and large, I am not that positive. I still remain quite cautious on the market and we are at an inflection point and depending upon Trump policies, depending upon this earnings season, maybe even the budget, the longer-term trend of this year may get determined.

Help us with your take on the counter because it was just yesterday where the company has come out with the top variant prices of two of its newly launched electric vehicles, wherein for BEP Pack three, the company has decided a price of close to 27 lakhs and the base model has actually been priced at around 19 lakhs and for XEV 9e, the top variant is priced close to 30.5 lakhs when the base price was close to 22 lakhs. And I remember while the launch was happening last year, the debate was just around that given the tech that the company has been providing in two of its EVs, the pricing is really attractive. But at these price points, with its top variant now ranging between 27 to 30 lakhs, how do you see the demand shaping up and how do you see M&M disrupting the EV market share?
Dipan Mehta: First of all, I really liked the analysis done and except for Reliance, I am in complete agreement that Eicher Motors, M&M, and Sun Pharma, three companies we and our clients are invested, I think have the best chance of outperforming the Nifty in 2025. And specifically, M&M, they have really got the EV formula right and now with good monsoon and pickup in tractor sales and also utility vehicle sales it is company firing on all engines.

From that point of view, very positive on M&M. The PEs also got re-rated. The stock is not as cheap as it was earlier. But amongst all the automobile companies, the growth dynamics are the best over here and it is gradually increasing its market share across categories.

It is a company on the go, as I said it is a company in which we and our clients are invested in, so our view could be a bit biased. But yes, very positive on M&M and we do hope that these kind of volumes are sustained for rest of 2025.


I look at the other way around, which is that, okay, they have done well and they have done exceptionally well, great launches, everything is fine but their market share in the SUV market has reached at a level from which it should come down rather than go up, which is competition has intensified, their market share which is more than 50%. While SUV is the buzzword, it may remain fashionable. But for M&M to keep on giving that surprise every quarter at that kind of base, with this kind of a market share could get limited.
Dipan Mehta: Yes, it is possible. In auto industry, there are cycles and sometimes when the company has a lull of new models, sales may tend to slow down, market share gains may be lost a little bit. But look you see the strategy, all the new models which they launched are extremely successful. Of the three Indian passenger vehicle companies, they have the best plan in terms of EVs, the best in terms of new models as well and mind you I have taken a test drive of a couple of their models and they are exceptionally good.

So, from that point of view when you look at a longer-term view, that they are disrupting the auto industry, EVs are here to stay and among the three companies which has the best strategy, I think that would be M&M.

And look, they are delivering quarter after quarter in terms of financial numbers as well and balance sheet quality has improved, return ratios have gone up, they are focused totally on the existing domestic market and that is growing well for them. So, it is a company firing on all cylinders. So, from that point of view, it could be an outperformer.


At some point in time, which is what I am wondering when, there would be a realisation which would be that quick commerce has become intensely competitive. Everybody now wants to have a pie of that quick commerce business. From getting your grocery to getting iPhone delivered in quick commerce to getting vegetables delivered late at night, everything is happening in 10 to 15 minutes. And when such a thing happens, it is good for consumer and good for shareholders. Are we reaching that point for quick commerce companies and especially Zomato, Swiggy that it is time to take a differentiated view?
Dipan Mehta: Any success is going to attract a lot of competition, there is no doubt about it. But the key is execution and early mover advantage and I think that both Zomato, Swiggy have that particular advantage. And while they may suffer a few quarters because of intense competition under cutting, but end of the day the same thing played out in the food distribution business but then these two companies survived and now we have a duopoly kind of a situation over there. So, let us just wait and watch and see. The market also is expanding. Right now, we are seeing quick commerce only in the metropolitans and the large cities, it could go down to tier II, tier III, who knows how this actually will play out.

So, despite the announcement of so many new players, we are certainly not trimming our positions in Zomato and remaining invested. It is one of the very high growth sectors within the consumption theme and at a time when a lot of stories and a lot of segments in the consumption theme are fast slowing down or have reached maturity and you still want exposure to consumption theme, then these are definitely one of the choices you should select.


Anything else which could be called a fallen angel in your book? While we may look at the market and still say it is expensive, but I was just looking at like a random list of stocks which have fallen and stocks you would say that are good businesses you can recognise. Inox Group, Chola Group, Tube Investments, there are a lot of stocks which have fallen 15%, 20%, 25% in this market adjustment. Anything which pops up on your radar which you said, okay, I wanted to buy it, now I have got that 25% correction.
Dipan Mehta: No, no, again, we are going into stock territory and again, I have to give a disclosure. I mean, we recently did some sort of study on Symphony and Symphony has been a great wealth creator over the last two-three decades or so and it is the market leader and as you know in the air cooler business, it is totally focused over there, it has corrected more than 40% from its all-time high, maybe close to 50%, I need to check that figure, and it is available at reasonable valuations.

We are definitely seeing that climate change is causing intense heat and intense winters as well. And intense summer if it does happen in 2025, this company could be a major beneficiary. In 2024, it had the best of a year because of a very-very strong summer season and that if it gets repeated in 2025, you may see the company doing even better.
Some of the internal issues have been sorted out and now sales are on an even keel. So, when you look at companies which have corrected significantly from the top and available at reasonable valuation and yet are bluest of blue chip company, look at its ROC, ROE, balance sheet management, all have been phenomenal and most importantly the focus on just a single product where they are a market leader and the kind of new products they have launched, all are very impressive.

So, this is just a company, stock to discuss, it is not a recommendation, it is just something we identified that which stocks have corrected significantly, the erstwhile blue chips which are available at reasonable valuations.