Edited excerpts:
How are you viewing pharmaceuticals? Rakesh Jhunjhunwala says one should stop focusing on what the US businesses and look at the domestic and inward stories. How would you approach pharma?
My call for Holi is please enjoy the weather but keep some powder dry, because March can be a month with a lot of opportunities at much lower levels. Coming to pharma, it has been a dog of a sector. It has been all over the place but like you rightly pointed out, if there is now one alibi, the headwind of rupee becomes a tailwind and like you pointed out we are extremely positive about stocks like Aurobindo Pharma or Dr Reddy’s or Cipla, where we think at least 20% upside in 2018 is on the cards, given that they weathered the storm well and now the issue of gathering steam on the approval fund will see a large part of new launches and that could add to the kitty in the next two quarters. So, as a contrarian play, we think there is a lot of value at these levels in select pharma stocks. A disclosure: Aurobindo, Cipla and Dr Reddy’s are something which we are constantly having a buy recommendation on.
What is your view on Venky’s and EIH Associates?
Venky’s has been a huge outperformer. As the non-veg side or chicken side starts to gather steam, rising rural incomes and the people increasingly dining out has become a huge upside. Plus there is a rise of low-carb and the other types of diets playing out where chicken consumption is on the rise and the variables become very, very big.
On the back of the relaunch of the Oberoi, EIH has been well received. If there is one industry where I can actually put my money, it is the hotel industry. Indian Hotels has been our top pick and EIH Associates is also gaining.
What is the call to the retail investor out there? Typically, when you have some marquee names attached to some of the stocks or speculative stocks in nature, retail investors get tempted to buy into the stocks. Would you say just stay away, steer clear, let a clear direction come out in terms of what really happens with Fortis eventually?
It is a case of glass half full or half empty. While there is so much of scam related or issues about the promoters, the underlying fundamentals of the business remains very robust — whether it is an Apollo Hospital or the whole gamut of hospital and the insurance business. It is a huge money kicker. It is just about getting your act together. It is in many ways similar to the Sayam story. If you picked it up at the heat of the moment at Rs 10, you stood to make a lot of money. And that is what the marquee investors are saying, that the underlying business remains good but it has been poor management and shrouded financials which have given you the price that you are getting.
So if you can weather the storm and live through the rhetoric, it may turn out to be a huge upside because the Singh brothers holding is now abysmal. That tells you most of the leveraged sales against pledged stocks may be history and now a new promoter will come over a period of time. But, you will have to live with the negative rhetoric which can continue for some time.
When we talk about rupee depreciation, we tend to link it with IT, pharma and some textile companies. Do you think Bajaj Auto really could be a dark horse? It is an outstanding business. Their margins are better than what TVS and Hero MotoCorp currently are commending and the export business which has been on the backseat for the last two or three years, could also make a comeback.
Correct. You summed it up brilliantly. If they get their act together, particularly in the subcontinent area — they have a very big presence in Sri Lanka and some of the other markets – – it is actually going to be the kicker on the bottom line. Plus the new launches which are in competition with the new Bullet of Enfield is also going to gather steam. You pointed out correctly that in the two-wheeler segment, Bajaj Auto is the only exporter with a large presence and if they do get that act together which they have indicated in the last few quarters, then Bajaj Auto should be one of our top performers in the two-wheeler space, given that their cost efficiencies are the best in the industry. For us, in the two-wheeler side, Bajaj Auto would make a better investment than Hero MotoCorp.