Ipca Lab will do very well irrespective of how market performs: IIFL

Lemon Tree is one stock that could do well going forward once everything gets cleaned up, says Abhimanyu Sofat, VP-Research.

What is your view on some of those pharma names? What do you feel is going to be the trend and where would you be looking within that pharma pie?
Within the pharma pie, we have to go more bottoms up and that would be a better approach to look at. Ipca Lab, considering the kind of backward integration they have done and the way they are sourcing their API raw materials clearly, is one company which should do pretty well going forward. So irrespective of whether the Nifty is at 10,500 or at 9,500, Ipca is one stock that one can look at.


Another stock that you could potentially look at is Laurus Lab where going forward they could probably see their profits of close to around Rs 500 crore in the next two years. So at a 13 multiple, that is a good story to look at from a pharmaceutical side. API players are what one needs to focus on rather than the formulation side. That has been the focus area for us and going forward, we see the structural shift happening in the overall pharma market and API players are going to be pretty critical going forward.

Let us talk about hotels as well. A host of market experts sound very bullish on the sector saying that eventually things will go back to normal. Would you agree and if so, where would you look within that basket?
If you look at the hotel sector, depending on the chain, around 20% to 30% of the revenue comes from the F&B side. F&B revenue could get impacted going forward because a significant amount of that business continues to come from people going to hotels and then eating in one of their restaurants. Lot of people do something called as R&R, which is a reward and recognition where the MICE segment people go and they reward their employees. Ao a lot of those particular segments one could expect at least for next seven-eight months. No one is going to do those kinds of activities until and unless we have a vaccine coming and it is easy for people to move around cities. So it makes sense to look at stocks like Lemon Tree because the stock has come down. In terms of brand, they are quite decent. They are also in the process of getting some amount of money and they will be able to sustain going forward as well. So Lemon Tree would be one stock that I would see from this particular segment which could do well going forward once everything gets cleaned up.

What is your outlook when it comes to Hero MotoCorp? What would you watch out for when it comes to their earnings?
If you look at the last month's numbers, versus an expectation of close to one lakh vehicles, they came close to 1.15 lakh vehicle sales. So going forward, you could see a significant uptrend happening in terms of volumes really going up. The company has sufficient cash on the books and their working capital cycle is quite well and I do not see any issue happening. The stock has gone up a bit too now; close to around Rs 2,385 odd levels.

Clearly the stock has an ability to reach around Rs 2,600 levels because we believe that there could be a significant uptick in volumes coming from July-August as we see more and more people coming and expecting to move around and for that buying a bike. So I would say that the risk reward is quite favourable and the main commentary that I would be looking for rather than the volume side because that is something not in the company’s hand. But more on the margin side, how they are able to take care of the margins and to what extent they have been able to open some of their dealerships in the tier II cities would be critical for me because rural demand is likely to be pretty strong going forward as well.