In the series gone by, there was a clear leadership from and SBI. What could SBI deliver in terms of numbers and is the leadership going to stay with these two names?
First of all, I cannot comment on SBI results. We are part of the SBI Group but when it comes to the banks, you have rightly said that there are a few banks which are now taking leadership positions in terms of cleaning up books. The cleaning activity that has been going on for several years, has now translated into good results for ICICI Bank and Axis Bank. The private banks have been doing well relative to the public sector banks in terms of the clean up act.
I am not saying that the PSU banks have not done that. They have done a bit of cleaning of their own. But as far as PSU banks are concerned, their capitalisation ratios are poorer compared to the private sector banks and therefore their ability to grow post the cleanup of the book is likely to be limited.
Having said that, if you go a little lower in terms of the banks’ sizes, then some of the PSU banks at the lower level — Uco Bank, Indian Bank or even Canara Bank to some extent– are doing relatively better when it comes to delivering a good set of results. The theme for most of the banks is that the leadership will come once you are up and ahead in terms of clean up of your books.
As far as pharmaceuticals go, what do you make of Sun Pharma and the API story? Is there still a lot of upside left?
Sun Pharma posted a very good set of numbers. The US business has actually grown even on a quarter-on-quarter basis from Q4 to Q1. Many of the other pharma companies — be it Dr Reddy’s or Alembic — have reported huge price erosion when it comes to their US market presence and Sun Pharma actually has seen no such price erosion so far.
Over a period of time, Sun Pharma has pursed a brand strategy in the US and gradually built brand. That seems to have worked out well. Even Taro, which is their subsidiary, has posted a very good set of numbers but there is an exceptional item that they have reported in Taro — close $60 million on the litigation side. We do not know whether that fully provides for the price fixation related litigation. I assume that is what they would have provided for when it comes to litigations or if there is something more left to be provided for in subsequent quarters.
Sun Pharma’s strategy over the years has included paying rich dividends. From a stock point of view it is still at price levels which we had seen five years ago. Many other pharma companies are very close to their all time highs — be it a Cipla, Dr Reddy’s or others.
Sun Pharma has posted a good set of results; we now need to hear a little bit more from the management in terms of their commentary because we do not know whether the growth is going to be sustainable for Sun Pharma in the quarters ahead. Today’s price action was stunning and really unexpected.
It has been exactly one week since the Zomato IPO got a blockbuster listing. Why have we not seen a rub-off effect on InfoEdge India? Afterall, InfoEdge discovered Zomato.
I disagree that there is no rub off effect simply because you are looking at a one-week period or probably a very short period. If you look at a longer period, the rub off effect is clearly there because Zomato IPO process had started nine to 12 months ago and that IPO process got accelerated in this calendar year.
Even from a calendar year perspective, InfoEdge has done quite well for itself. Also, Zomato is not the only IPO or the gem in their basket. InfoEdge has other start-ups and other tech based platform based companies which are gearing up for IPOs. There is PolicyBazaar, 99 Acres etc. Having said that, Naukri or InfoEdge has a lot to go in terms of maturing and growing in terms of its size. It is purely coincidental that we are just looking at a one big phenomenon since the listing of Zomato in terms of the rub off effect on InfoEdge. What needs to be looked at is a longer term period and InfoEdge has been fairly valued.
Now that most of the big counters and their earnings are in, are you looking at any new themes?
It is clear that the IT companies are doing substantially well and the deal win momentum is continuing. Infosys upgraded their guidance for FY22 when the first quarter results came in, Look at
results; the last year’s total deal wins were some $2.2 billion. This quarter alone has seen $0.8-0.9-billion deal wins. That is quite substantially high and the reaction can be seen in the results as well. But the one theme that one can see cutting across sectors seems to be that the companies having climbed over that base effect of last year’s Q1, are now facing margin pressures.
Not only that, going forward, the demand outlook is getting a little hazy. In the case of automobile companies, the demand outlook does not seem all that rosy. We have the festival season coming up. Typically the automobile sales spurt during festive seasons but some of that spark is missing in the monthly numbers that are getting reported by automobile companies.
Look at NBFCs, we had a shocker of a result from M&M Finance when their NPA levels zoomed quite substantially. Talking of NPA levels, even HDFC Bank exhibited NPA pressures on their retail book side. So the theme that seems to be emerging here is that margin pressures are going to remain and many of the companies will have to either raise the prices of their products and services to ward off the margin pressure and have to contend with falling demand. So post Q1 results, one should be very cautious in terms of being positive on the market.
