How do you approach Sun Pharma in business today?
A lot of these pharmaceutical companies and a lot of these generic drug companies have a lot of lawsuits, some allegations. Moreover, they faced the USFDA hurdle two or three years ago and went through a difficult phase. My opinion is that many of these pharmaceutical companies, even in the multinational universe and even in the generic space, including Sun Pharma, are probably all right to rally.
The excess on stock is likely cleared now and further buying from many participants who have been waiting for this news may occur. It’s not the favorite among the companies we buy; there are plenty of other companies in the pharma space that we like, but yeah, the negativity should be out of the way at least for this case.
It almost seems that Invesco is softening its stance on Zee and has decided to withdraw its notice of requisition calling for the removal of Managing Director and CEO Punit Goenka from ZEE’s board. The agreement with Sony should go more smoothly than expected?
I think so, it looks like the position is now a bit more lenient in terms of letting the deal happen. I guess the Sony Group probably came and talked about buying Zee and if the deal goes smoothly with Sony being a big conglomerate in terms of media ownership and IP rights and all that, that would make it a stronger group. As the Invesco hurdle pulls away, this likely opens the door for a small rally. I’m not saying this is a buy or sell recommendation because it’s overshadowed too much by a lot of news feeds rather than fundamental developments, but if it materializes the deal bodes very well for the stock in the short and even the short term. middle term.
What is your call to FPO Ruchi Soya?
It looks like the FPO would pass, the flagship investors who participated yesterday are also encouraging the street and, more importantly, the company. At present, these types of businesses are attracting more and more investors. Look at Adani Wilmar’s list of IPOs. After that, the rally was exclusive. Ruchi Soya itself is a market leader in terms of its Ruchi Gold brand. In addition, it is a very important player in the market for soybeans, soybean mustard oil and sunflower oil. There is investor interest. Also, there’s so much inflationary pressure, interest rate pressure, commodity prices going up but yeah, some of these companies would be in leadership positions because they’re market leaders in their own right.
My feeling is that this IPO would go through, but there are other companies that should get a bigger leadership bonus. Companies like Britannia, Nestlé, which have underperformed over the last year, a year and a half, when the market was in risk mode, all of these companies will come under pressure on commodity prices, from wheat to sugar, to other input cost pressures.
Market leaders are those that have proven themselves over the past 10-15 years rather than embarking on a new trajectory or territory where commodity pressure might kill some brands or lack the fixing power prices.
What is the right level to buy Sun Pharma aggressively enough?
It does not qualify at all in my shopping list. So to be very fair, over the last three or four years we’ve been very selective and picky on the pharmaceutical side and we continue to be. I wouldn’t want to give a clichéd answer. But if we look at ROE and ROCE and companies that probably aren’t the non-allied type of companies, over the last three or four years the company has had litigation in the United States, but also a lot of other problems.
We are in multinational pharmaceutical companies like Abbot Laboratories. After the correction, we also started buying Dr Lal Path Labs, a company with 35-40% ROE, a company that has a bigger market share of around Rs 800 revenue per patient. These are measures that we like. Other than that, we also like the CRAM space, where Syngene has been one of the top picks for the past two or three years.
The company has underperformed over the past year. Pharmaceutical companies also underperformed. Sun Pharma is therefore not on my shopping list at all. Companies like Syngene or MNC pharmaceutical companies or Dr. Lal Path Lab immediately come to mind, if one wants to expose themselves to the healthcare space after this underperformance as well as after the underperformance of many companies or the correction of many companies in the last few months.