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Research

Sanjiv Bhasin prefers pharma to IT, has outperform on 3

| November 14 2019 15 : 04 IST | The Economic Times

Sanjiv Bhasin, Executive Vice-President, IIFL Securities, is overweight on Sun Pharma, Lupin, and Dr Reddy’s. The only IT stock where he has a buy is Wipro.

What are your favourites and avoids within the pharma space?
We are overweight on three stocks which are an accumulate for us. These are Sun, Lupin, and Dr Reddy’s. Sun numbers were better than expected and we think they are going to see more traction on businesses aside from the US.

Lupin has divested the Japan business which would mean that return on equity and debt overhang gets reduced. They are also concentrating on other geographies rather than the US.

Thirdly, Dr Reddy taken the cake their PAN European out of Europe is doing extremely well with Russia and some of the CIS countries adding muscle to it. These three will be relative outperformers. In the near term, they also become good catalysts for a weak rupee. We would rather play these rather than IT where again, most of the good news may be in the price. A caveat, the only IT stock where we have a buy on is Wipro.

Today is going to be all about telecom, not just Bharti’s earnings but telecom shares may just go in deep losses. DoT has asked telecom companies to pay AGR dues within three months. Vodafone CEO, however, is clarifying on his views on comments on India business at the risk of going bust. He says the comments were a little distorted and this comes after a top government official expressed disapproval over the remarks. How are you reading into the developments within the telecom space?

It is a glass half full, half empty. If you read the bottom line, Jio has reduced the days available on its Rs 179 pack which means ARPUs are definitely going to expand with price rises across the board. You will have to start paying slightly more for the data you use. That means profitability in the next three-four quarters could be strongly on the upside. There are two-and-a-half players and we know the rhetoric which is going around on how to get them relief. I am sure the government will work out some package.

This will be very positive for the sector as a whole. We continue to think Reliance, Bharti will get an inordinate share because of the market and Vodafone till it grapples with some relief from the government, will continue to struggle.

Is it time to buy ITC? It has been months and months of underperformance. Would you say that ITC is a great value buy or you would avoid them given that the narrative for tobacco globally is negative?
Yes, it is testing your patience. A disclosure, we have been recommending ITC for more than a year and it has done nothing. But let me give you the context, for seven years Reliance did nothing and in two and a half years it is up 2.5 times. For eight years, Microsoft was flat and last two and a half years it is up 3.5 times. If there is one company which deserves to be a $100-billion company in the next three years, it would be ITC. Look at the hotel business. The Indian Hotels numbers have set the cat amongst the pigeons. With 7,500 room on franchise, it is the third largest hotel player.

ITC Bhadrachalam is gaining market share in the pulses market. They are gaining market share for new products in the FMCG basket. To top it all, cigarette prices and volumes are showing traction in the last quarter.. I would say next Diwali Rs 350 plus would be my call on ITC.

It is sourced based story that Vodafone-Idea management has said that we will not infuse more capital into the company even if the company goes to NCLT. If Vodafone-Idea goes to NCLT, that means there could be a problem for banks which have a large exposure to telecom. YES Bank has Rs 5,000-6,000 crore exposure to Vodafone-Idea. State Bank of India has a very large exposure to this sector. Could this really turn the wheel for the market?
Like I said there are always optimists and pessimists. Most of the rhetoric is rumour mongering, as you have seen in the case of a lot of whistleblowers on Infosys and so on. So I do not know if that is the truth, but I think Mr Kumar Mangalam Birla has deep pockets. He has committed Rs 25,000 crore on the rights and I think he is here to stay. So, we will take it with a pinch of salt. Yes if it does turn turtle, then banks will be hit. But most of the provisioning may be there and nobody actually thought that it would become a total writeoff. There is still more time to go. You know that there are two-and-a-half players only. I think this quarter they will manage to get on.

Secondly, I am very confident that the government will be more proactive and by the end of this month, you should start to hear more news from the government on some relief for at least Vodafone and Bharti in the payment schedule or maybe an elongation of the cycle. As it is, we are hearing of reduction in spectrum charges and so on.

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