7 hours Ago
Dhananjay Sinha , Co Head of Equities & Head of Research, Systematix Group , says in the pharma space, he picks stocks on a case-to-case basis. One does not take a very generic view as an industry. It has to do with various molecules and formulations.
It has to be specific to factors that are there in terms of their businesses. Cipla is top of the chart, followed by Sun and Orchid. The fourth is Pfizer , which they have been holding for some time.
What is the view on pharma and what names would you recommend from the pack? Dhananjay Sinha: Pharma is something that we have been positive on and there is a good amount of traction happening there. Cipla is at the top of the chart for us, followed by Sun and Orchid. For Orchid in particular, we are expecting a rise in the EBITDA over the next four years because of the product mix that is changing.
So, those are the stocks that we like in the pharma space. We also have Pfizer, which we have been holding for some time. These are the stocks that we have in our preference list.
The pharma sector per se is growing at 7-8%. Valuations are 30, 35, 40, even 50 times in select pharma. If the top line is in single digit, what is this excitement all about? Dhananjay Sinha : In the pharma space, it is actually very case to case basis.
It is not a very generic view one can actually take as an industry. It has to do with various molecules and formulations that are there. So, it has to be specific to the factors that are there in terms of the businesses that these guys are actually having.
So, it has to be very case to case basis. I just talked about Orchid, where we are looking at a significant rise in terms of the EBITDA that they could actually generate for the next four years. It could multiply in the next four years.
Our analyst is saying that it could rise by almost three times. So, it is specific to the stock that we are looking at. I do not think we should look at a generic industry story.
Apart from that, what is also relevant is that in terms of the portfolio allocation, there seems to be a lesser risk out there for visibility in terms of the outlook being stronger, whereas on other major components such as BFSI, consumers, metals, people have concerns. Also, high growth sectors such as infrastructure, cement are seeing a significant downdraft as far as the performance is concerned. So, there is allocation bias also that is happening in favour of the pharma stocks .
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So, for telecom, it is largely to do with the tariff hike expectation that people have. The competition on the pricing side is much lesser, so that price action is a major driver for the telecom companies. What do you think of urban consumption because while rural recovery has not picked up the way we wanted, urban consumption has moderated a bit, at least the festive season was not as great? Do you think Black Friday sales and all of that can spur the consumption? Dhananjay Sinha: Yes, the main issue with urban consumption is the fact that a significant leverage consumption was happening till a few quarters back and the key issue is also that the pace of growth of compensation has slackened and the cost of living has risen.
That is why we see a lot of inventory issues are piling up with multiple segments. These sales are essentially to clear the inventories and stuff. So, it does come as a bounty for the consumer which is actually facing very high inflationary scenarios.
This can boost some amount of volumes for the companies. We will have to see what it does to the margins. So, there can be a correction to the margins and stuff and what it implies for profitability, and that is something we will need to see.
By and large, it looks like the festive demand has been much more modest and muted and the companies are responding to the situation. I think that is what it is. Coming to rural demand, most people are expecting a better situation in terms of recovery.
Most of the consumer companies are telling us so and there are some lead indicators corroborating that with respect to the government spends and wage growth, etc. There is some positivity, a very modest one, but definitely there seems to be some bottoming out there which could reflect in the coming quarters as far as consumer companies are concerned. You Might Also Like: Be picky to make money in pharma; Swiggy can be a good return generator after 2 years: Neeraj Dewan We need to look at staples versus discretionary versus autos, etc.
We need to look at the entire thing in a different perspective. I do not think it can be very generic over here. Certain segments can do well.
Certain companies can do well. Whosoever has pricing power, whosoever has better volume growth are stocks we are looking at. We are more constructive on the consumption space.
We are looking at a set of names, but we are definitely looking at a better rural demand scenario. You Might Also Like: Second half to be better than H1; bullish on rural, not urban India; premiumisation, not mass market: Nilesh Shah (You can now subscribe to our ETMarkets WhatsApp channel ).
