ET NowIn a chat with ET Now, Dilip Bhat, Joint MD of Prabhudas Lilladher, shares his views on the market as well as the pharma space. Excerpts:
ET Now: Things have been going fairly good for the equity markets. Even if there is a correction, it’s always a mild one. But do you think that perhaps now, markets are looking a little overvalued?
Dilip Bhat: The markets have seen only a very shallow correction. The fundamental assumption is that in the next two to three years or maybe longer, we are going to see a broader trend which is going to go northwards - whether it is economy, earnings, etc. Markets are probably still factoring that in and as we have seen, in every dip in the market, there is a good amount of buying that takes place.
Hence, I am not too worried about the corrections. There is bound to be correction the way the markets have gone up one way, but the channel is one of upwards. I would not even like to take a guess on how much it would be - it will continue to be shallow. It could go sideways at best.
ET Now: Were you surprised with what Cairn India dished out? Is that a big disappointment for you?
Dilip Bhat: In this market, in the last couple of months, everybody had forgotten about the issue of corporate governance, minority shareholders interest, etc. One of the perceptions about this particular group has always been that the cash is very much fungible between the companies and this is not a very comforting factor overall for any investor. That remains a source of perpetual worry for any investor on the corporate governance front.
My worry is that valuations will remain a lot more muted and may not have an unfettered rise. If they are given some kind of clarity or visibility, ultimately all these companies will be merged because all of them are involved in natural resources. That could possibly be one of the justifications and then the cash flows become one. But till that time, these perceptions on corporate governance will continue to cast a shadow and probably will prevent an unfettered rise in the stock prices.
ET Now: By and large, it has been fairly okay for midcap pharma companies and even some of the large cap ones. But now and again, you get these US FDA shocks coming about. How is it that you would approach this basket?
Dilip Bhat: Shocks from FDAs will continue as the proportion of exports from India keep on going up. They will come under deeper scrutiny, but I am not too worried about some of these things. I would look at these more as aberrations and not as a fundamental doubt on the kind of the shipments that we make from here. One or two here and there is bound to happen, especially when your exports are growing.
Thus, the pharma space still looks attractive. For example, whether it is Lupin or Divi’s or Ranbaxy, I would continue to look at them. The pharma space as a whole should remain interesting because the growth is going to continue for the pharma companies on a broader basis.
ET Now: Your top pick still remains Aurobindo Pharma from that pack. Also, what is your view on Financial Technologies? Does it present a good risk reward opportunity or would you leave it alone?
Dilip Bhat: Aurobindo Pharma has seen a fair amount of rerating. Even after having run up so much, it could take a breather for a medium-term basis. But the fundamental equation of a company which is going to clock almost 2000 crore plus of EBITDA and which is going to remain below 3000 crore EBITDA to debt looks interesting. The company is still going to clock almost about 20 per cent bottom line growth. Thus, Aurobindo Pharma on a longer-term basis would still qualify as a buy.
Coming to FT, a lot of things are happening in that every day. You hear different news, but nothing is really out in the public. Hence, as a rule, I would not like to dabble in this company for some time.
ET Now: Things have been going fairly good for the equity markets. Even if there is a correction, it’s always a mild one. But do you think that perhaps now, markets are looking a little overvalued?
Dilip Bhat: The markets have seen only a very shallow correction. The fundamental assumption is that in the next two to three years or maybe longer, we are going to see a broader trend which is going to go northwards - whether it is economy, earnings, etc. Markets are probably still factoring that in and as we have seen, in every dip in the market, there is a good amount of buying that takes place.
Hence, I am not too worried about the corrections. There is bound to be correction the way the markets have gone up one way, but the channel is one of upwards. I would not even like to take a guess on how much it would be - it will continue to be shallow. It could go sideways at best.
ET Now: Were you surprised with what Cairn India dished out? Is that a big disappointment for you?
Dilip Bhat: In this market, in the last couple of months, everybody had forgotten about the issue of corporate governance, minority shareholders interest, etc. One of the perceptions about this particular group has always been that the cash is very much fungible between the companies and this is not a very comforting factor overall for any investor. That remains a source of perpetual worry for any investor on the corporate governance front.
My worry is that valuations will remain a lot more muted and may not have an unfettered rise. If they are given some kind of clarity or visibility, ultimately all these companies will be merged because all of them are involved in natural resources. That could possibly be one of the justifications and then the cash flows become one. But till that time, these perceptions on corporate governance will continue to cast a shadow and probably will prevent an unfettered rise in the stock prices.
ET Now: By and large, it has been fairly okay for midcap pharma companies and even some of the large cap ones. But now and again, you get these US FDA shocks coming about. How is it that you would approach this basket?
Dilip Bhat: Shocks from FDAs will continue as the proportion of exports from India keep on going up. They will come under deeper scrutiny, but I am not too worried about some of these things. I would look at these more as aberrations and not as a fundamental doubt on the kind of the shipments that we make from here. One or two here and there is bound to happen, especially when your exports are growing.
Thus, the pharma space still looks attractive. For example, whether it is Lupin or Divi’s or Ranbaxy, I would continue to look at them. The pharma space as a whole should remain interesting because the growth is going to continue for the pharma companies on a broader basis.
ET Now: Your top pick still remains Aurobindo Pharma from that pack. Also, what is your view on Financial Technologies? Does it present a good risk reward opportunity or would you leave it alone?
Dilip Bhat: Aurobindo Pharma has seen a fair amount of rerating. Even after having run up so much, it could take a breather for a medium-term basis. But the fundamental equation of a company which is going to clock almost 2000 crore plus of EBITDA and which is going to remain below 3000 crore EBITDA to debt looks interesting. The company is still going to clock almost about 20 per cent bottom line growth. Thus, Aurobindo Pharma on a longer-term basis would still qualify as a buy.
Coming to FT, a lot of things are happening in that every day. You hear different news, but nothing is really out in the public. Hence, as a rule, I would not like to dabble in this company for some time.
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