Do you see the auto numbers give any semblance of hope or do you think there are many more overbearing factors?
The auto sector numbers have been a bit divergent because on the two wheeler side, we are not seeing the same kind of pent-up demand which was there last year. That is what Bajaj Auto had also indicated after the results. It is something which could play out in the second quarter of this year which may not see the same resurgence and it is also reflected in the numbers.
On the other side, the four-wheeler demand seems to be buoyant and that is somewhat surprising given the price inflation. However, that seems to be holding up possibly because there is still excitement related to newer products etc. While Maruti is sold off after results, it could start looking interesting again. Two-wheelers overall are still to be avoided. The real comparison will start from August because that is where we will see last year and this year’s economy opening up almost similarly. This month will be more critical.
How are you reading into ’s earnings?
The numbers were far ahead and this is one stock which has now become a quite under-owned relative to the overall pharma basket because the company continues to disappoint and people lose hope. This move has happened because they surprised so positively. We hold the stock and I am still positively inclined that there is still potential of positive surprises and pure valuation. Sun Pharma is trading much cheaper than the rest of the pharma basket.
After Dr Reddy disappointed on the results front, most of these stocks sold off. What people need to realise is that the pharma basket is one where we cannot take a view on the sector as a whole because every company has a different strategy, different products, different markets. So, I would still be positive. After the big run up, the stock could consolidate on time as well as directionally.
Diagnostics stocks in general have seen a bit of a decline. How do you see Dr Lal PathLabs placed and what is the next big trigger going to be?
All the diagnostic chains are doing well and that is largely driven by Covid related testings. For Dr Lal PathLabs, 36% of the revenue this quarter was related to Covid. Now valuations of most of these companies have gone up substantially and are trading at very high valuations. In this context, we need to factor in what happens once these Covid tests reduce because these are high margin earnings.
Right now, the valuations are not such where people could participate. In the same quarter, next year, if Covid is under control, then we could see that from being 36% of the total business, Covid tests could account for only 10% and the trend growth rate for the rest of the business is 10-12%. So, we might actually see a degrowth scenario as we go forward into the last quarter of this year and first quarter of next year etc. So all that needs to be factored in. Now valuations seem to be such that new investors should largely avoid this sector.
It is a week of mega IPOs once again. Devyani International is the largest of them all. Given the kind of traction that we have seen in QSR, especially in the backdrop of Jubilant’s numbers, is it of interest to you?
The QSR space is buzzing and companies are coming out right now because the valuations which they are getting are very attractive. Overall, as a company, Devyani International is well placed but as is the case of most IPOs, the pricing is very aggressive. What does not seem to be mattering this time is the IPO pricing because all IPOs are getting good listings. We need to evaluate this company post IPO. Given the buzz in the sector, the IPO should be well received and the listing in all probability will be good because the timeline of listing is so fast that market conditions might not change so much for valuations to get impacted.
I would think that at this stage of IPO, people can get subscribed. Subsequently post listing, when we can buy a bigger chunk. At that time, we have to look at valuations which for most of these companies are not attractive at all.
