Right time to pick up pharma stocks: Yogesh Mehta, Motilal Oswal Securities

In a chat with ET Now, Yogesh Mehta, Motilal Oswal Securities, says pharma is in doldrums, nobody is looking at it and this is the right time to pick up pharma stocks for the portfolio. Edited excerpts


ET Now: Despite the market being in the mood that it is in, your top ideas are still pharma -- why not the economy-related stocks, why not Larsen, why not any of the banks?

Yogesh Mehta: If I have to say something like everybody is gung ho and running after private sector banks which has already gone through the roof now and we have seen valuation very stretched now near to the price targets. NBFC companies and microfinance companies like SKS Micro and others have also reached that level. But pharma is in doldrums, nobody is looking at it and this is the right time to pick up pharma stocks for the portfolio. If there is nothing wrong with a company and if it is already factored into the prices, then it will be a good opportunity for investors to latch onto the stock.

ET Now: How do you judge what is in the price because I thought at Rs 800, all the bad news was in the price for Sun Pharma. I thought at Rs 1400, all the bad news was in Lupin. But when I attended the con-call for Sun Pharma and Lupin, I realised that the problems will only amplify and Sun Pharma for the first time in last 10 years actually at a con call has said that we will struggle to grow even a double digit.

Yogesh Mehta: Yes that is true for Sun Pharma, especially it is there and they are still hanging around the issues which is there in the last acquisition as well. So the probabilities are very high for them to remain in the same range or maybe some downside is limited for that particular company but otherwise, pharma companies already have seen 483 observations. So all negatives are priced in and at some point in time, one has to look at all these companies. Take Larsen & Toubro, nobody was looking at it. At Rs 1150-1100 or maybe Rs 1000, there was a bottom. Everything was pessimistic and suddenly the scene became rosy after the results were out and now it has given a return of 35-40 per cent in the last six months.

Similarly, you never know about the company, 483 observation was not there in the picture. That time everybody was gung ho about Lupin, Sun, Dr Reddy’s, everything and once it has come, it is down by 30 per cent. Valuation which was quoting at 30-35 times price to earning ratio, has come down to now 25 and in the range of 23 to 27 PE multiples.

ET Now: What do you do with banks like a Yes Bank which has given tremendous returns? Do you book out? Do you stay put because the Yes Bank story may have just about started?

Yogesh Mehta: When the Q4 result came out, Yes Bank showed a potential to grow further as well. So we think that it would be a good portfolio stock and one should hold on to that. Yet it is not a right time to ripen your profits but hold on to your holdings and stay invested.

ET Now: Do you track DLF because DLF has been one heck of a performing stock at least in the month of May?

Yogesh Mehta: Yes we do track DLF but not thoroughly but it is still trading at a discounting NAV basis. At Rs 133, it still has the potential to have a good upside for the investors and recently what was happening was that they have done a JV and they have enchased the money from the cinema and other stuff. So they are doing away with the bad on the balance sheet and there restructuring of the balance sheet is happening but there's still a long way to go. So upside is limited but yes getting cleaned from the balance sheet purpose.

ET Now: Coming to the debate over Godrej Consumer versus HUL. I think they are slightly more focussed company.

Yogesh Mehta: Hindustan Lever has a huge diversified portfolios of their brands and here it gives edge to them on Godrej Consumer reaching rural focus from as they want to grow by 30-33% in the rural area and FMCG is the flavour right now, everybody wants to gung ho about that. After Patanjali also is going into that unlisted name. So the better prospect are there in FMCG. Even we have seen other corporate houses also moving towards FMCG in the short shampoo and personal care, hygiene care products. So Godrej Consumer is renowned strong brand recall and will have a better growth prospect for India at least.