Wanted your take regarding the entire paint sector as well. Grasim management met a few analysts and they are talking about how they are looking confidently about the paints foray. They are making investment of almost Rs 10,000 crore for this particular vertical. Would you bet on Grasim as a paints player at all or would you stick with the traditional names, Asian Paints, etc?
Grasim foraying into paints is a known news and it will take a while for them to really make any meaningful impact in terms of the market share, etc. And we think that after a very strong volume growth of most of the companies like Asian Paints and Berger, the volume growth has actually gone down. We are seeing consumption slowdown indications. So we think that the overall sector may remain a slightly range bound for now, but if you see any meaningful correction of about 5 to 7% in a name like Asian Paints, definitely it will provide an entry point.What is your outlook is when it comes to the entire FMCG basket? Would you be very selective within this space, looking at perhaps some of the large caps and do you believe that inflationary concerns will persist, will eat into earnings in the coming quarters?
Two issues that FMCG sector is grappling with; one is that there is a perceptible slowdown and one will have to really wait and see how long this lasts. Secondly, these companies have traded at a very high PE multiple and it makes it more difficult for people to really go out for them, even if there is a small correction of 3 to 5%. I think in the pack, Godrej Consumer is something that we have been liking because of the cut in the palm oil prices and the fact that their overseas business is doing relatively better. We would definitely go with that. But yes, on an overall basis, this is one sector where we expect underperformance to continue and we have an underweight position in our model portfolio.
Why is PVR underperforming because that big overhang of the Inox PVR deal as well gets lifted off now? It is a clean signal. Is it just a function of content or people’s habits have permanently changed post-Covid and now it is OTT versus big screens?
Two, three things; one is that, of course, what you said very rightly that people are now getting more used to the OTT platform and the kind of content that you are seeing there is very refreshing and innovative. And only when you see a very good movie where the reviews are good and there is a lot of popularity, you find people going out and watching in the theatres. Also, we have to understand that this entire integration is still pending. There are a lot of regulatory overheads which are still there, so which will have some impact. And we think that the market has not priced in this disruption in the content as yet, as PVR still continues to trade at a very high PE multiple. So we think that, see, some pullbacks basis, the success of certain movies, but we do not think that it is a structurally long story like it used to be maybe two years back.
What is the outlook is on pharma as a whole, given the fact that Jefferies as well is talking about lowering EPS estimates for Cipla. They are talking about price erosion in some of their drugs. What s your outlook?
Our take is that a lot of negative news flow and regulatory overhang has happened. The sector has underperformed. But this is classically the time when you really start looking out for opportunities also. So I think for names like Sun Pharma and Dr. Reddy’s, which have been relatively better performers, I think this would be a good entry point for somebody who is looking to invest. At the same time, I think the companies where we have some sort of an overhang, let us say Cipla recently had some issues and, a couple of more companies had some regulatory issues. So I think we should stay away from there where the earnings visibility is not so strong. But I think it would be good to have some allocation to pharma sector at this point.
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