ET Now: What did you read in
’s conference call commentary and how do you see that stock at Rs 660-670-680 odd in terms of valuations?
Cyndrella Carvalho: Valuation is something that we cannot discuss on the stock. The gap is definitely very wide and even though they called off the Cronus acquisition and along with that there was MD’s resignation also. So people will wait for some time as things settle down a bit.
On the other hand, in the US the injectables fees are taking slightly longer to come back given the pandemic and the other situations and raw material costs. The industry wide scenario along with the weaker business at least in H1, is driving some of the earnings cut for us as well. Overall, FY23-24 could be much better given that injectables could come back very fast and drive better margins and till that time, the pandemic and other businesses specifically ARV, where we have seen significant reduction has eroded a lot of H1 earnings.
ET Now: A minor margin compression in Divi’s Lab triggered a big downgrade. It was down 10% yesterday, it may have recovered a bit today but how do you see that on valuations versus performance?
Cyndrella Carvalho: Again the valuation in case of Divi’s is largely determined by their leadership position in the CRAM and API businesses. Yesterday’s dip was largely driven by the Pfizer Covid pill announcement versus molnupiravir which is the Merck medicine where Divi’s is the exclusive supplier from API perspective.
So it was more of a global followup reaction in terms of a newer pill which has more effectiveness compared to molnupiravir. But the data for both the drugs right now is very limited and we really need to wait for the final data to come out and decide which one will be better and that has led to a little bit of relief today. But these kinds of Covid pill related opportunities are very wide and huge and one player would not be able to meet the global need. Any kind of oral treatment is very well welcome and I think this will evolve. There are three-four more players who are under trial.
So we have to see how the Covid pills market evolves. The opportunity at this point in time looks significantly high. We will wait and watch in terms of how the data pans out and how efficient one pill is over the other pill before deciding that this one is better or this one is worse off.
In terms of valuation, the current valuation is around Rs 100 EPS for FY22 and if we go ahead, at the FY23 and FY24 level, we still see significant opportunity given that the company has done very strong capex and along with that, there was a lot of traction to fast track projects on the CRAM side as well as on the generic side. Growth wise we are not concerned, given the capex and the opportunity in front of us. So valuation could be slightly northward. Any correction would be an opportunity to look at the stock.
ET Now: Which is your best or top pick for the next 12 months on risk reward versus earning quality from the largecap universe in pharma?
Cyndrella Carvalho: So I think Sun stands out. We have been highlighting it a lot. So,
and on the API CRAM side, Divi’s are two big ones and in the largecap space purely from the pharma side, Sun and Dr Reddy’s are the two names that we are actively looking at from the largecap perspective.
