Rana Gupta, Senior Portfolio Manager at Manulife Investment Management, recently shared his insights on key market themes, including aviation, quick commerce, and electronics manufacturing services (EMS). Gupta discussed the importance of understanding core revenue and cost dynamics in the Indigo aviation sector, where recent operational challenges have created uncertainty for investors.
Gupta emphasized that investors should wait for clarity on the revenue per seat kilometre and cost for available seat kilometre before making any investment decisions. With government-mandated route cuts and increased pilot hiring, the net impact on profitability remains uncertain. Gupta advised investors to wait and see how the revenue and cost equation settles before taking a call on the sector.
Despite recent corrections in stock prices and increased competition, Gupta remains optimistic about the long-term outlook for quick commerce. He believes that promotional spending can be beneficial if it helps build long-term customer repeat orders. Gupta expects the dark stores of these companies to mature, leading to a clearer path to profitability. He suggests giving the sector two to three quarters to demonstrate its potential, with larger players likely to show profitability within that timeframe.
Gupta stressed the importance of cash flow alongside growth in the EMS sector. He warned investors against companies with aggressive growth and low margins, where net worth is primarily funded by investor capital rather than retained earnings. Instead, Gupta sees value in companies with strong core businesses that are reinvesting their own cash flows to expand into EMS. With India's electronics production projected to grow three to four times by 2030, Gupta believes these stocks could be good opportunities following the recent correction.
Gupta analyzed the social commerce platform Meesho, noting its focus on free cash flow. He pointed out that Meesho's profits are derived from logistics efficiencies and advertisement revenue, rather than charging consumers or sellers. The key question for investors, according to Gupta, is the scalability of its open-sourced logistics model. While acknowledging the model's success in other countries, Gupta believes more time is needed to fully understand its long-term potential to scale in India.
Gupta's insights provide a valuable perspective for institutional investors looking to navigate India's aviation, commerce, and electronics sectors. By focusing on core revenue and cost dynamics, cash flow, and scalability, investors can make informed decisions and capitalize on the growth opportunities in these sectors.
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