Let’s get started by hearing from you and learning about Asian Paints. How would you decipher the quarterly numbers since there were some omissions this time? Do you think the situation should stabilize or improve once price increases begin in the coming quarters?
Sandeep Sarbharwal: Yes, this entire paints sector is very similar to the cement sector in the way companies are continuously announcing price increases. However, due to the intensity of competition, these prices never really fall to retail levels and cost pressures create pressures on profitability. .
Cement is maintaining profitability as it clearly benefits from falling fuel costs. But in the paint space, as I’ve mentioned over the last three years, once Grasim gets aggressive and starts to push their products because they’re really getting into the market and they’ve invested heavily in the paints segment, you’re going to see margins getting bigger and bigger. Now that it’s been condensed for existing players, it’s live.
This could last for at least 12-18 months until the point where Birla Opus actually gains a reasonable market share. And that’s when the pricing pressure could ease and that could be a time when we could have a good opportunity to buy into the paint segment.
So now I am avoiding the overall industry, and I think Asian Paint in particular has been under the most pressure on margins out of all the performance of paint companies that have actually entered the market, and as such, I think the valuation after earnings has become much more excessive than before. This was before the results came out.
Of course, there will be three or four stocks in focus today, so what are your views on pharma? Except that Aurobindo Pharma’s earnings were a little weak, but Lupine has been a great set and we expect that momentum to continue in the US. The commentary on the conference call was strong. Of course, Divi’s expectations were slightly surpassed, and Biocon’s news of the winding down of its Bengaluru unit will also keep the focus on the stock. What do you love about the pharmaceutical industry right now?
Sandeep Sarbharwal: Yes. Lupin continued on a path to recovery that began two or three years ago. So we bought Lupin very early on, but it actually closed around the 2000 level, but the company continued to perform well and this performance along with that performance will keep the stock performing.
Divi’s has consistently performed well over the past few quarters, again after several quarters of consistent underperformance, which is why the stock has actually performed very well. So Divi has two parts: One talked about pricing pressure in general terms, which is about half of the business.
We are doing very well in our CDMO business. So there is a pull on both sides. After the stock price fluctuation, I think it is a reasonable price at the moment, so I think I should buy it through adjustment rather than buying at the current price.
Now what is the deduction for total car space? Of course, Tata Motors was disappointed. However, the outlook for both JLR and the company as a whole is positive. Ola Electric also had heavy warranty costs. Do you think M&M’s are a clear winner and will continue to be so in the future?
Sandeep Sarbharwal: I think so. Especially since they are performing well in the automotive segment even as the rest of the company is under pressure and as per the guidance in the conference call, they have mandated a huge pickup in the tractor segment. They’re actually seeing that 5% to 6% growth move to 13% to 15% growth in the second half of the year. This is very important because tractors are much more profitable than cars. Therefore, if your tractor performs well, your profitability will increase significantly. So, I think M&M should remain the clear choice in terms of four-wheelers, followed by Maruti and then Ashok Leyland, as in the ranking for four-wheelers.
I just spoke to management after evaluating Ashok Leyland’s quarterly numbers and they said they want to be cash positive. They are very optimistic about the second half of the year. What is your takeaway?
Sandeep Sarbharwal: Ashok Leyland has performed very well and has aligned with the correction in other auto stocks. So, at the current price, I think it is quite valuable because it requires management analysis by each management team. Ashok Leyland management has traditionally always presented an optimistic picture, but it needs to face reality and do its own analysis. So, if CV recovery and volume appears to be leading the way, the stock could actually be good, but we should proceed with caution at this stage.
