Does Sun Pharma’s result indicate what to expect from the pharma sector?

Historically I have always noticed that is more like a canary in a coal mine, the lead indicator of what is happening to the US generic and speciality market. Should one read too much into the Sun Pharma numbers as a lead indicator of what to expect from other pharma companies going forward as a trend and a trajectory?
I would be cautious; I think the pricing pressure in the US market has been really brutal. Yes, Sun Pharma’s numbers do look good as far as this particular quarter is concerned but one has to remember that every pharma company is playing their own game. They are in a different space altogether. Yes, everybody is in pharma but each kind of a company is in a particular niche area and they have their own set of challenges, their own set of pressures and competitors.

So I would not read this as a general lifting of pricing pressure and improvement of margin for the entire Indian pharma industry which is having a leg in the US. I will be cautious. We will have to go company wise. Also, remember that US FDA action and unnecessary challenges are not over for the pharma industry as a whole. There is a lot of pain still left there.

I have been mentioning this and I maintain that. I would rather bet on companies having a significant domestic business because domestic pharma is robust and so are the API companies and some of the injectables companies which are into injectables space are also good.

So I would probably still go and buy these companies rather than companies like Sun which has got a significant presence in the US and a significant part of their revenues and profitability depends on what is happening in the US.

A lot of people are now looking at value versus growth and power fits the bill perfectly. NTPC, are all making a bit of a move today and is now up 5%. Would you want to hazard a bet in this space?
I believe that eventually power is a utility and we should expect annuity income coming from power companies once things stabilise. We are getting to a stage where things will be stabilising. It is a matter of a few quarters and after that, we will probably see a lot of these excitements and turbulence in the power sector getting settled.

NTPC definitely is a good buy; I have been recommending it for the last one year. Even now, I would bet on NTPC. It is obviously the largest power generator in the country. They have a significant emphasis on developing green energy now. They have a fantastic backward and forward integration for the traditional generation, the coal linkages as well as the forward integration in terms of agreements with the discoms.

Also, the challenges vis-à-vis discoms in terms of recovery are getting to a stage where it is becoming manageable. I would not say it is fully satisfactory but it is getting there. So overall, things are improving and if I have to pick one power generating company today, I will go for NTPC.

is expanding beyond just traditional utility and being a traditional thermal power generator because they are moving into EVs and also distribution. Some would argue that they have got their act right?
Absolutely. They have moved aggressively into the green energy bit and they are talking about significant scale up there. So it has got to be a very good balance between the traditional as well as the green energy. People who were focussing excessively on green energy have realised that the time for discarding traditional sources of energy still has not come. Maybe we are 30-40 years away from that stage and these 30-40 years are going to give a lot of income and opportunity to these companies which have got traditional businesses.

To an extent, discom foray by NTPC and some other power companies is an effort at forward integration. They had enough problems. Do not forget that with the existing distribution companies, they can do the distribution themselves. I think they keep control and also capture incremental margins. I do not see any harm in that. It is a very good step. I am not sure about EV and the result and whether they should get into that kind of segment or not but at this stage, I would not focus too much on that.

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