What is your opinion on real estate? After an excellent 2023, it seems that this year is also raring to go!
Mayuresh Joshi: The type of impulse that real estate stocks that we are witnessing today clearly indicates the type of demand momentum that all these stocks are having. Any new release that occurs is being rejected quite easily. And once we have seen that the real estate cycle, once it enters that intermediate phase, there is a greater acceleration. We are exactly at that midpoint of the real estate cycle, which lasts six, seven years, probably in the third or fourth year, which means that you can expect a further acceleration in the next few quarters, in a couple of years. also.
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The kind of unsold inventory that is coming off the books of all developers and the velocity of pre-sales that is occurring will clearly provide momentum in terms of cash flows and reported numbers as far as the coming quarters are concerned. The second element is the deleveraging that is also occurring on the balance sheet. Therefore, many players are heavily deleveraging their debt, which is also a very healthy sign. And the mix of demand and supply is likely expected to raise expectations about how profitable profits will be for the sector as a whole. So it's entirely possible that momentum will continue.
My own opinion is that real estate assistants, plywood stocks Like Century Ply, Green Ply, laminate stocks have not performed as well as real estate stocks. They should also be a representative of the real estate sector. The numbers have been pretty studious so far. Therefore, expectations in terms of stabilization of input costs, return of demand and that are reflected in better volumes in the future with better realizations to result in good operating leverage, as we see. There could be chances of good EPS and RS Rating improvement as we see in the markets. And therefore, these ancillaries should probably also be kept on your radar for good results in the coming quarters.
What do you think about the pharmaceutical industry, which is appearing on most people's radar as contraband right now?
Mayuresh Joshi: Two or three things could work in favor of the pharmaceutical industry; One, obviously the combination of products. Therefore, a greater mix of specialty products and higher-margin products, including branded generics, likely means that pricing should continue to favor a large number of pharmaceutical companies.
The second element is that, despite what you've probably seen in terms of generic drugs, both pricing and margin issues, they should largely stabilize going forward. And if any of the FDA issues are resolved for some of the plants, a significant portion of the new launches that may occur could likely impact much of the earnings growth that could likely be seen in the coming years. Sun Pharma, Cipla and Lupine are likely to remain holdings in our global portfolios.
From an earnings perspective, our view is that declines or pullbacks in Torrent Pharma and JV Chemicals can probably be considered. Again, the key triggers remain the same in both stocks. Torrent, largely toward branded generics, which account for more than two-thirds of its revenue. A large portion of revenue coming from the brand means the EBITDA margin should remain between 29% and 30% odd. A host of new launches are expected at its Dahej facility, which should also support profit and return ratios. Similarly, in case of JV, domestic formulations have increased quite significantly in case of JV Chemicals. We are also expected to see a big chunk in terms of the CDMO business really gaining momentum in the coming quarters. A combination of both should reflect very positively on the EBITDA margin, which is very similar to Torrent's band of 28-30% odd, resulting in better earnings growth due to stable margins. And again, expectations of new launches materializing, which should offer better margins and increase in terms of return rates. Therefore, it is likely that a couple of declining stocks can be analyzed as we see them at their market value.
Among the updates we have received so far from the banking and financial services field, which ones really caught your attention?
Mayuresh Bank: IndusInd Bank gave some decent figures. And again, from a valuation matrix, it's not too expensive. If they are able to continue this trajectory, as they noted in the third quarter, there appears to be a high probability that, as we approach the next financial year, and in a scenario of rate cuts both globally and locally, the NIMS should recover very, very smartly. And due to their stable balance sheet so far, it is expected that in the second half of the next financial year they will be able to continue their good performance.
Similarly, within the PSU package, Bank of Maharashtra has once again delivered a decent set of numbers - overall business grew by 18% and advances grew by 20%. And a similar story is unfolding, although you'll likely see NIMS compress in the coming quarters. The first half should show a stable recovery, and a significant recovery in the second half. But apart from this, I think what we probably also like is a smaller stock within the PSU universe called Bank of India, because most of the parameters that we talk about in terms of pressures on asset quality are disappearing , in terms of supply, which are relatively high. , and the heavy emphasis placed on recoveries and improvements, if that is likely to be true for most of FY24 as well, the ultimate growth may be significantly higher. And return ratios can also recover very, very quickly, specifically ROE.
It probably meets most of the criteria we looked at, in markets where conclusive ROEs are being established, including the kind of price action we probably want, expecting that the fundamentals are likely to remain stable for most of these PSU stocks.
But aside from that, how are you approaching the markets right now, especially this, of course, the large-cap versus mid-cap versus small-cap debate? Where do you see value right now?
Obviously, comfort is still in large-cap companies from a valuation perspective, because a lot of mid- and small-cap companies have risen quite significantly. From a valuation/comfort level and also from a risk-reward perspective, large caps obviously offer more margin of safety. Obviously, we're creating a group and a group in terms of the stocks on our watch list; ICICI Bank, HDFC Bank, IndusInd Bank, as I said, within the banking names, UltraTech Cement within the cement package, and also something like, if you point to Maruti, within the four-wheelers.
Large-cap companies obviously have a certain margin of safety, but mid-cap companies selective in certain sectors can be expected to do well as well. So, outside of consumer discretion, I think some of the packaged companies are something that we remain very optimistic about, Parag Milk Foods, for example, the market leadership in value-added products, the prices of milk, acquisitions have come out, which means an expansion of gross margin and EBITDA.
They are expanding their retail reach in the coming years, which should also significantly increase their margins. And so, in our view, a select category of these packaged foods should continue to do well, as well as certain sectors within the manufacturing and infrastructure capital investment themes. So I think some of these domestic cyclical stocks within the mid-cap universe should continue to do well. And some of these large-cap companies across the board, purely from a risk-reward and margin of safety perspective, can continue to do well in FY24.
