What has gone wrong with a company like Lupin? Their margins are now below 15%. Has the company which was backed by famous investors like Rakesh Jhunjhunwala, lost its mojo?
There has been a lot of underperformance from Indian generic pharma companies, right from Lupin to Sun Pharma or even Dr Reddy’s. Some of the companies which were outperformers — the Indian MNCs like Abbot or Sanofi or Pfizer initially did well. On the generic side, there was enough competition and USFDA issues suddenly came back to fore for a lot of these companies.
So the sentiment right now in the market seems to be a little more risky. There is strong value inside these companies but yes, the delivery has been questioned in the last two, three quarters. The market had started to factor in some good numbers for Lupin three, four quarters back, but in the last one or two quarters, the company has disappointed.
But it seems to be a little bit of a value buy at this point. Maybe in another one or two quarters, if it can solve the USFDA issues, it can make a comeback. But yes, more of the money right now is going towards MNC pharma companies or diagnostic companies or for that matter even hospital companies.
ET Now: What was wrong with Axis Bank numbers that it just fell like a stone from top of a cliff?
Devang Mehta: What I am seeing in the last few days is that on a good number, a decent number it is more a sell on news. That of course cannot justify the argument that I am making right now but the same thing happened to Bajaj Finance, strong numbers, strong commentary. Axis Bank is also talking about not only demand coming back but recoveries being strong.
I feel a comparison was made between ICICI Bank and Axis Bank and that is the best guess I can make because ICICI Bank was a little more strong in terms of their commentary and in terms of real operating numbers. So in that sense, the market probably took it, it opened up but some bit of selling was observed there and which probably got into some other banks. I would still maintain that for playing corporate capex, the best bets are Axis Bank or ICICI Bank. So yes, it is more a correction that has happened because of sentiment improving in favour of ICICI Bank.
results came out yesterday during market hours. Maruti looked like it was going to disappoint. The stock, however, saw a spike. Have the markets now assumed the worst is over? YTD, this stock down by about 5%?
What has happened with Maruti so far is that people could not understand the story about how it may probably make its way into not only electric vehicles but the headwinds that the company faced in the last three, four quarters right from migration towards the Europe norms as well as probably what has happened in the last two, three years is that the demand scenario was never clear for passenger car vehicle.
One important thing that we have seen is that Maruti losing market share is a bit slower than market expected. But going forward, with the aggressive strategy from Tata as well as Hyundai and all these companies, the market is anticipating a bit of a market share loss.
The chip issue has also probably been a problem. The management commented about 1,25,000 cars not being delivered because of the same issue. But yes, the demand for two lakh cars right now — which is the pent up demand — augurs well for the company. But all in all, the pathway is not very clear for the company. It is a hold but otherwise, not a buy for the longer term. There are enough spaces in the market where probably one can have a good night sleep and a conservative bit of returns.
Maruti would probably face not only margin pressure depending on how operating costs are controlled and how it takes price hikes. It took 1% price hike in August and 1.5% in September. They controlled costs efficiently during the Covid times and had the lowest ever margins. The Street probably will give it a bounce back because it has underperformed but it is a difficult call to take right now. I would say it is not the best to buy at this point.
