All the Nifty earnings are out. According to you, who are the winners and losers?
The first quarter of FY22 is a very peculiar quarter. It has been impacted by the second wave of the pandemic and so it is very difficult to compare this with either the first quarter of the previous year or even the fourth quarter of last year.
So, we should set it aside and look at the picture in FY22 second half. The commentary coming out of most of the companies indicate that we should be back to the pre-pandemic levels from a business standpoint. That has been baked into the numbers of the sell side analysts. So while the first quarter per se got impacted to some extent by margins coming in lower than what the Street was expecting, there was a raw material impact, there were supply chain related issues connected with semiconductors and containers not being available.
All of that had kind of impacted the revenue to some extent and more so the margins. I would say that looking out into the second half of FY22 things should look up and the key thing here is comparing the valuations and earnings picture. Valuations are fairly rich in my opinion at this point in time. I think from here on I would probably depend on earnings growth to drive the market and I think that… so looks fairly poised right now, fairly well poised right now. I think the macro picture on the monetary side looks fairly sanguine even as we speak about tapering. There has been a lot of talk about tapering but unless the Fed applies the breaks very aggressively, I do not think this equities rally is going to be derailed so quickly.
How are you approaching the pharma sector and which are the winners and losers according to you?
Pharma has been a pretty big outperformer. From a pandemic standpoint, it has been an outperformer within the market though lately it has been under a bit of pressure. Q1 has been a bit of a challenge for most of the pharma companies. I would say the US revenues for most of the pharma companies have been a tad lower than what the Street was anticipating though the domestic revenues have been pretty okay.
Margin pressure has come through. The pricing pressure that one is seeing in the US is probably a little higher than what the Street was building in. So that is the near term picture. Valuations are reasonably rich according to my pharma analyst and while we do not have any big aggressive calls on the pharma stocks, within the large cap space, we like Sun Pharma, Cipla to some extent and Sun, largely driven by the potential upside from a couple of speciality products like Cequa and Ilumya and Cipla. It has got fairly broad based, fairly stable base revenues on which they are trying to grow.
We have a broadly neutral-ish call on pharma. Within it, in the midcap space, we like Sanofi where we think there is a fair bit of upside broadly driven by the insulin opportunity that we foresee in the times ahead.
What is your call on Wockhardt?
We do not track it but I think one should be a little careful about these Covid trades because our sense is that these are probably one-off revenues and profits on which one should not be giving a very high multiple. If and when this vaccine comes into the market, it will be faced with a fair bit of competition and so we do not think runaway profits could be made by anybody in the vaccine space. because I think you will probably see anywhere between half a dozen to a dozen players in the market selling vaccines at any point in time in the next 6 to 12 months. So we would be a little careful in terms of extrapolating the revenues and profits of some of these Covid opportunities into the future in a very big way. We would be a little cautious. As I said, we do not cover Wockhardt so do not have any specific view on it.
