So, we will be a little bit careful as we are tracking these global trends to probably be not that aggressive when it comes to EV as a pure play.
"Having said that, both players are in a very aggressive capex mode to improve and increase their dark stores, in fact, double their dark stores over the next four quarters and therefore the kind of expectations that one really has from an earnings perspective and from a cash flow perspective, they are definitely going to take a hit," says Mayuresh Joshi, Head Equity, Marketsmith India.
Give us an idea of where you were seeing the entire quick commerce, quick delivery, food delivery space headed. Just today we have a very bullish note coming in on Zomato wherein CLSA has maintained a high conviction outperform on the stock. It is also one of their picks and this is on the back of the weekly active user metric that CLSA has been tracking and it has been doing well for Eternal. The past couple of trading sessions you had the spotlight on Swiggy. Today suddenly you have Eternal that is back in focus and amid both of these highly competitive players somewhere you are also hearing news flow that Zepto is delaying its IPO. So, give us a sense of where you are seeing competition shape up in this industry and who would at the end emerge victorious over here.
Mayuresh Joshi: It is about perspective because if you probably have a larger time landscape and a horizon kept in place over the next four to five years, obviously the expectations in terms of core metrics whether it is the food delivery business or whether it is the quick commerce business is expected to garner further steam because what you are probably seeing in metro areas right now will get penetrated and extended to tier I, tier II cities as more discretionary spending comes through and therefore, the scope and the opportunity that all these players probably have are relatively large.
Having said that, both players are in a very aggressive capex mode to improve and increase their dark stores, in fact, double their dark stores over the next four quarters and therefore the kind of expectations that one really has from an earnings perspective and from a cash flow perspective, they are definitely going to take a hit.
You have obviously seen that in numbers, specifically for Eternal as well as Swiggy to a large extent. And let us not forget competition. So, to that extent as cash flows get dampened because of all these factors at play, competition is also brewing up pretty strongly.
So, you have seen JioMart actually expected to expand its operations, the pilots that they are probably running. We do not know how the Amazon pilot is expected to take place and we are hearing from a few large multi-retail stores actually starting to have their own ecosystem as far as deliveries are concerned.
But the bottom line is there is sufficient tailwind, as I said, over a longer periodicity of time in terms of a lot of dynamics at play. The ordering activity in terms of the number of customers, the expectations of the size per order and therefore, the expectations that one really lays out in terms of the margin profile and performance both in terms of the food delivery as well as the quick comm business is something which will remain steady and improve.
However, at this point of time, my own sense is that numbers will be a little bit soft because of all these factors at play. But again, stocks like an Eternal as an example, I think they should come back and bounce back very-very smartly by the end of this year once largely the capex programme and the opening of the dark stores is probably done and dusted with.
I want a sense from you on the impact that we can expect from this rare earth issue that has taken place and also the magnets issue because China as we understand controls 90% of the world's market when it comes to this. Give us a sense of what impact we could see on our Indian EVs because on one hand just very recently we have had the government's EV policy push come out wherein there have been incentives to produce more EV in India and now we have a headwind as big as this. So, how is this going to play out for our sector and how quickly do you believe Indian autos can find a fix around this?
Mayuresh Joshi: The concern here largely is that the overdependence in terms of China still continues to a large extent and therefore China becomes one of the biggest drivers in terms of determining the policy as far as raw materials are concerned for a large part of the EV ecosystem and therefore, when there are no diversified or alternate supply chains to probably coexist or have the quantum of supply that China can probably do, there is some element of overhang that probably comes through.
We had seen that earlier as well. A few years back when the semiconductor issue had cropped up and companies had to go through a transition phase where there were no semiconductors in the market at all and therefore the production pipeline itself got choked. Obviously apart from this issue which is obviously a big issue in terms of a headwind for the sector as a whole, the overall demand dynamics have come off quite significantly. What we have been reading through in terms of our global coverage and global reports as well the EV adoption rates have come off quite significantly.
The kind of capital impairment that has probably happened on a lot of balance sheets, you talk about the Volkswagen group, you talk about the Mercedes group, you talk about JLR, I think a large part of their balance sheet in terms of cash flow impairment specifically in terms of R&D for electrical platforms, powertrains have been quite significant and if demand comes off to a certain extent, the kind of balance sheet hit that might happen from an immediate short-term perspective can be relatively large.
The last point being, let us not forget the competition perspective as well. BYD is coming out with strong content models. They are coming out with pricing which is very-very competitive as we speak and therefore, one of the biggest markets outside the US probably remains China. EU demand is still a little bit soft and therefore, the market is facing a lot of headwinds as we speak. So, we will be a little bit careful as we are tracking these global trends to probably be not that aggressive when it comes to EV as a pure play.
Give us an idea of where you were seeing the entire quick commerce, quick delivery, food delivery space headed. Just today we have a very bullish note coming in on Zomato wherein CLSA has maintained a high conviction outperform on the stock. It is also one of their picks and this is on the back of the weekly active user metric that CLSA has been tracking and it has been doing well for Eternal. The past couple of trading sessions you had the spotlight on Swiggy. Today suddenly you have Eternal that is back in focus and amid both of these highly competitive players somewhere you are also hearing news flow that Zepto is delaying its IPO. So, give us a sense of where you are seeing competition shape up in this industry and who would at the end emerge victorious over here.
Mayuresh Joshi: It is about perspective because if you probably have a larger time landscape and a horizon kept in place over the next four to five years, obviously the expectations in terms of core metrics whether it is the food delivery business or whether it is the quick commerce business is expected to garner further steam because what you are probably seeing in metro areas right now will get penetrated and extended to tier I, tier II cities as more discretionary spending comes through and therefore, the scope and the opportunity that all these players probably have are relatively large.
Having said that, both players are in a very aggressive capex mode to improve and increase their dark stores, in fact, double their dark stores over the next four quarters and therefore the kind of expectations that one really has from an earnings perspective and from a cash flow perspective, they are definitely going to take a hit.
You have obviously seen that in numbers, specifically for Eternal as well as Swiggy to a large extent. And let us not forget competition. So, to that extent as cash flows get dampened because of all these factors at play, competition is also brewing up pretty strongly.
So, you have seen JioMart actually expected to expand its operations, the pilots that they are probably running. We do not know how the Amazon pilot is expected to take place and we are hearing from a few large multi-retail stores actually starting to have their own ecosystem as far as deliveries are concerned.
But the bottom line is there is sufficient tailwind, as I said, over a longer periodicity of time in terms of a lot of dynamics at play. The ordering activity in terms of the number of customers, the expectations of the size per order and therefore, the expectations that one really lays out in terms of the margin profile and performance both in terms of the food delivery as well as the quick comm business is something which will remain steady and improve.
However, at this point of time, my own sense is that numbers will be a little bit soft because of all these factors at play. But again, stocks like an Eternal as an example, I think they should come back and bounce back very-very smartly by the end of this year once largely the capex programme and the opening of the dark stores is probably done and dusted with.
I want a sense from you on the impact that we can expect from this rare earth issue that has taken place and also the magnets issue because China as we understand controls 90% of the world's market when it comes to this. Give us a sense of what impact we could see on our Indian EVs because on one hand just very recently we have had the government's EV policy push come out wherein there have been incentives to produce more EV in India and now we have a headwind as big as this. So, how is this going to play out for our sector and how quickly do you believe Indian autos can find a fix around this?
Mayuresh Joshi: The concern here largely is that the overdependence in terms of China still continues to a large extent and therefore China becomes one of the biggest drivers in terms of determining the policy as far as raw materials are concerned for a large part of the EV ecosystem and therefore, when there are no diversified or alternate supply chains to probably coexist or have the quantum of supply that China can probably do, there is some element of overhang that probably comes through.
We had seen that earlier as well. A few years back when the semiconductor issue had cropped up and companies had to go through a transition phase where there were no semiconductors in the market at all and therefore the production pipeline itself got choked. Obviously apart from this issue which is obviously a big issue in terms of a headwind for the sector as a whole, the overall demand dynamics have come off quite significantly. What we have been reading through in terms of our global coverage and global reports as well the EV adoption rates have come off quite significantly.
The kind of capital impairment that has probably happened on a lot of balance sheets, you talk about the Volkswagen group, you talk about the Mercedes group, you talk about JLR, I think a large part of their balance sheet in terms of cash flow impairment specifically in terms of R&D for electrical platforms, powertrains have been quite significant and if demand comes off to a certain extent, the kind of balance sheet hit that might happen from an immediate short-term perspective can be relatively large.
The last point being, let us not forget the competition perspective as well. BYD is coming out with strong content models. They are coming out with pricing which is very-very competitive as we speak and therefore, one of the biggest markets outside the US probably remains China. EU demand is still a little bit soft and therefore, the market is facing a lot of headwinds as we speak. So, we will be a little bit careful as we are tracking these global trends to probably be not that aggressive when it comes to EV as a pure play.
