Play out on stocks which are cheaper in secondary markets rather than Alkem or Pathlabs: Sandip Sabharwal

In an interaction with ET Now, Sandip Sabharwal, asksandipsabharwal.com, says people used to buy pharma stocks for the overseas business but with the regulatory issues, it is getting tougher. Excerpts:

ET Now: Would you buy both Alkem and Dr PathLab, would you buy one, would you buy none?

Sandip Sabharwal: I would buy none.

ET Now: Why is that?

Sandip Sabharwal: I would buy much cheaper stocks which are there in the secondary market where this scarcity premium theory of IPOs were finally 700-800 crore of floating stocks. That is the play that's going around. I would rather play out on stocks which I find cheaper in the secondary markets because eventually the valuations will catch on.

ET Now: But Alkem is relative cheaper at 20 times on the grey market. It is India's third or fourth largest pharma company, they have nearly 2.5% of the total domestic sales. Old company, good brands, a very diversified portfolio so unlike Sun Pharma or a Dr Reddy or a Cipla where you are buying a pharma company which has inbuilt generic risk and USFDA problems, here you are betting on a company which gets 75% of its revenue from the domestic market where you know that regulatory problems are not large. Don't you agree?

Sandip Sabharwal: Actually it is the inverted logic which is happening now. People used to buy pharma stocks for the overseas business but with the regulatory issues, it is getting tougher.
ET Now: Now with the regulator in India pharma companies are having a tough time in convincing them?

Sandip Sabharwal: Approvals won't come through right now, so that will come through in two-three years. Price controls come anytime. I would say that Alkem is a low risk company so post an IPO pop which we talked about, I do not see any big returns being made from this stock that is personal view.

ET Now: You earlier said that you would look at ancillary plays in the broader markets and while we have Indigo that may have given 50% returns, Spicejet and Jet have done much better. So may be a point is valid, what will you look at in the listed space which are related to either an Alkem or a Pathlabs?

Sandip Sabharwal: Pathlabs there is no real comparison so on that extent it will continue to enjoy a scarcity premium as we saw in the case of Jubilant Foodwork kind of company initially.

ET Now: It is itself an ancillary business, it is an healthcare ancillary. Do you agree?

Sandip Sabharwal: There is greater value in the secondary market, not necessarily in the same businesses. So that is the way we have to look at it.