Gautam Dagad: No offense, but I think it’s futile to predict blue-sky scenarios for some of these stocks, and I’ll explain why.
As you know, Titan has been our top idea for the last 15 years. I remember on the day of demonetisation, Titan’s share price was Rs 360 or Rs 350. Now, in the last eight years, it has grown almost tenfold.
It’s the only reasonably sized consumer company that has grown both sales and profits by more than 20% over the last five years. And the stock has been expensive at every price: Rs 100, Rs 200, Rs 350, Rs 500, Rs 1,000, and now in the Rs 3,000 range. Even at Rs 1,000, if you did it with a blue sky, in three years, if you were very generous, you would have hit your target price of Rs 1,700 to Rs 1,800. And the fact is, the stock is now at Rs 3,500, right?
Look at Trent. You see, we have had many internal discussions after we raised the share price to Rs 800 two years ago. Every time it goes up by 20-30%, we discuss the numbers. What is the share price doing? It’s too high. We had this discussion when Trent was at Rs 1,400, then Rs 2,800, then Rs 3,500. The last time we had this discussion was three months ago, when it was at Rs 4,000.
We noticed that they were beating our projections on both revenue and earnings, and we came to the simple conclusion that until some of these companies start to live up to their growth expectations, it doesn’t make sense to anchor and exit the stock at a particular P/E, because even seven months ago, when Trent’s share price was at Rs 3,000, Trent was not cheap even at Rs 3,000, in fact, a year ago Trent was not cheap even at Rs 1,500.
So there is no set formula for blue sky because for these companies, all the growth numbers will be so much better than expected that blue sky scenarios become academic.
In the case of Zomato, you are watching it unfold before your eyes. In April 2023, the stock was at Rs 45. We started at Rs 55. Our initial target price was Rs 80. In fact, today we ourselves have a target price of Rs 300 after beating expectations for over five quarters. So, a year ago, we never imagined Zomato’s 2026 earnings estimates would be Rs 3,000 crore or, for that matter, we never imagined Blinkit would be such a big driver of Zomato’s overall valuation.
So you have to build your own guidelines. You have to build your own comfort zone around growth and then operate within reasonable limits. Forget individual stocks. Even when I was doing a blue sky scenario exercise for Nifty in August last year, the stock was trading at 18,500 or 19,000 at that time. I took a price-to-earnings multiple of 20 times FY2025 EPS, which is the standard price-to-earnings multiple for Nifty. I arrived at a target of 22,800, but since I was looking at blue sky, I assumed the government would win the elections. I applied a 10% premium on PM Modi’s return, political continuity, strong balance sheet, all these things. So, I arrived at a target price of 25,150 for Nifty on a blue sky basis for calendar year 2024.
Right now, that is the base case, or rather it has already arrived, so in a market that is very sensitive to liquidity, the traditional parameters of valuation and blue sky scenarios may not make sense.
