market strategy: REITs are the new blue-chips for passive income seekers: Ajay Srivastava

“Yes, PSU, the problem is PSU. As I keep saying again and again, as a consumer do I go to bank with the nationalised bank, I do not think most of us do,” says Ajay Srivastava, CEO, Dimensions Corporate.

I do a word cloud of our today’s interaction. You have really emphasised on three words — age, retirement, mature businesses. I do not know why, just a coincidence right.
Ajay Srivastava: Oh, yes, because I tell you, we get obsolete if we start investing in cement and steel again, that is the worst thing because we knew cement, we knew steel, does not mean we need to invest in it.

You should not have a portfolio investment in anything called cement or steel in our view. They are not growth industries. It does not take genius to put up a keel and start producing cement. Anybody can do it literally speaking. I am not saying buy, the stock like a Zomato, you cannot put up an infrastructure like Swiggy overnight, that needs innovation and you need to keep innovating in the companies.

Engineering companies, some are doing phenomenal job in terms of turbine, blades, etc, that everybody cannot go and make it tomorrow morning.

So, differentiation is when we grew up, our paradigm was asset building, steel, cement, and all those things were the favourites at that point time, those should be shunned from the portfolio, do not listen to anybody, they may have the best prospect, price may go up but those are not the stocks for you, that is not the future.

The future lies somewhere else and therefore, I say, with age, people who are still with cement and seal have retired from life, you have got to embrace what is the new and that is where you rejuvenate yourself.
You bought Vedanta in the past. I think you have also traded in and out of oil marketing companies. What happened to this whole dividend theory of yours because we have discussed this couple of quarters ago that go for companies which have high dividend yield, like a Coal India, Vedanta. Are you still a votery of that buy high dividend yielding stocks theory?
Ajay Srivastava: I am still holding Vedanta. For years I have been holding and I keep holding it because the dividend itself has made like equity zero at this point of time and again, I do not believe you can duplicate this company because if you have the mines you cannot go and open another mine overnight, it takes you 10 years to activate a mine. Yes, prices will go, fluctuate up and down, and so on and so forth, but the returns have been absolutely phenomenal. And the beauty is not only just equity, if you look at the REITs that India has, power transmission REIT, one of them which is a private sector, that has done a phenomenal job, the price at 100, it is at 150 and it has given dividend every year and it keeps going up year on year.

So, dividend yielding stocks, REIT equivalents have given phenomenal return through thick and thin and they are great investment as you go forward because they take away the volatility and whether you like it or not once you have the mine, you have to just go and dig and just sell it, price may be up and down but you do not need to buy a new mine every morning unlike plants and innovation and so on and so forth.

So, yes, I hold those dividend stocks. They have done well, and I will keep holding them because that is a good income which comes and these guys are going to generate income for not two, three, four years, they will generate cash for 25, 40 years in a guaranteed way. It can go up and down, but guaranteed cash flow for 30 years, 40 years. Show me a business like that and I would love to buy it again.

Coal India is another business. Show me a business, I mean 5% dividend yield. Mines, which cannot be replicated.
Ajay Srivastava: PSU. Yes, PSU, the problem is PSU. As I keep saying again and again, as a consumer do I go to bank with the nationalised bank, I do not think most of us do.

Do, I go buy a PSU product, most of us do not do it, alright. There is the separate niche for defence, leave it aside for a minute, that is a monopoly. But really speaking, do you have a BSNL connection, I do not think I have one right. So, nobody I know has a BSNL connection.

So, fundamentally investing in a PSU is putting faith that the government can give you incremental shareholder value when the government does not know how to run a business. It should not be running a business at the end of the day.
And therefore, it does not really matter. It is in a department. Look at oil marketing companies. What has happened to them? They are no more companies. They are departments. They do not change pricing. Oil can go down for $20. They do not change the pricing. Government comes and takes excise and takes it back.

So, really speaking, if you ask me, PSU commodity companies are not companies, they are extension of government departments and you do not want to invest in government department at the end of the day. If they were freely floating companies and they could price how they wanted, our OMCs would be valuable.

Look at their price to book, it is 1 or 1.2 and the asset they have created is phenomenal. The patrol pump, the real estate value, the refineries, etc. Privatise it, they will be quoting at five to six times what they are intrinsically quoted today. But being departments, how do your shareholder going to make money out of it? You cannot.

If the company does not increase the price or reduce the price when the demand falls, how do you make money? So, I it is the PSU tag which is a problem and I stay away from it most of the time.

I think that you have been liking I believe is the defence pack and of late, we are seeing the defence companies doing very well. There too is a lot of these technology upgradation is happening and recently with the tensions across the border we have seen now drones are the way to go. Give us some sense how are you looking at the growth outlook for the defence counters.
Ajay Srivastava: I think it is good, definitely it is good because government allocation will also go up. Defence has to go up given what has happened to the borders of ours. It is good for Indian companies. Again, they are not so cheap companies.

All are PEs of 80, 90, and 100 at this point of time. But they have a path to catch up. Perhaps they will catch up in three to four years’ time. You may go wrong with investing now and repent in a year’s time. But the fact is they have a good future.

Now the drone thing which is going on in this industry, I have, at least on my desk, I can tell you 100 prospectuses are lying of companies who make drones or want to make drones.

So, I am not sure who is going to be the winner or loser, but I can certainly say that the existing private listed companies of defence sector have a clear edge in the market and that is the place to be. But as I said, there are so many new players coming in, on top of that there is a global competition.

We are not the best globally in terms of the product at this point of time. So, locally, yes, we can buy some. So, I would temper down to say only one that the hoopla comes before you commit your cash and therefore be careful of what the cash will end up doing.

Lots of companies will do well, but the results are not showing so far. It is a long process in government to be empanelled, to get a product certified, to get it tested, get an order, get delivery, and book revenues. The cycle is seven years’ plus.
So, be careful, defence timelines are very long and very complex in terms of buying behaviour. So, short-term, yes, uplift but long-term be reasonable, these orders do not come overnight.