What is the view on the cement industry? Do you think the bulk of the consolidation is behind and there should be now some growth or do you think the sector would continue to be in the consolidation phase at least for the medium term now?
Anand Tandon: Whatever the companies have reported in terms of capacity growth, I do not see how they can be consolidating. The demand will continue to remain behind the supply. Most companies are adding a lot of supply even now and while there have been talk about limestone scarcity and the need for buying up capacity of limestone, I have been hearing that for the last 20 years. So, I do not think that that is going to be a constraint anytime soon.
Consolidation no doubt is progressing apace and therefore to some extent pricing may be a little more controllable as each segment of the market finds two or three large players as the dominant players. But for the near term at least, I do not see that happening and I think you will continue to find most of the companies operating at 70% or thereabouts capacity, which is not a very economically viable level to be operating.
As individual and case-by-case story pharma may be, but any view that you may have on the sector or any particular company that looks interesting?
Anand Tandon: Well, there are clearly two themes playing out, both of which are doing reasonably well. One is the domestic market where if you have got a good distribution, there is money to be made because the volume growth has again come back to about early teens from maybe almost single digits and therefore you are seeing a little bit of consolidation happening in the domestic market as well. Globally consolidation more or less is over and now the API prices have begun to move up and I do not think it is going to be a very sustained trend because after the US election, you are likely to see a lot of pressure coming through on US government purchases in medicines which means that there will be some pressure in terms of trying to keep the prices under control.
But for the near term, at least for the next six months, the likelihood is that you will get a little better of margins than you have in the past and we are already seeing that in the current quarter estimates. So, given the fact that it was a sector which had not done as much as many of the others, it is only rational that some of the companies which have got a good API portfolio, which they can supply overseas, are right now in focus.
What is the view on some of these names, they have run up quite a bit, all of these power companies, but do you anticipate further headroom for them to grow from here on as well?
Anand Tandon: Market seems to be super excited about the fact that there is a demand for power as if there was ever a situation where there was not a demand for power.
The problem always was, and continues to remain, that demand requires ability to pay and the classic definition of demand is willingness and ability to pay.
So, is there a need for power? Absolutely. Will the capacity continue to grow? Yes, they will continue to grow. Is it going to be something that will make you a humongous amount of money? Not really.
It is a utility, for heaven’s sake. Most of the companies which are in the government sector are regulated entities with a regulated kind of return and they will be supplying to public sector units, especially the state electricity boards, who are still in deep trouble. Nothing has changed there. And as far as the renewable situation is concerned, you are going to be getting more and more bids which will have to be bid at lower and lower prices by and large especially if the price of the hardware comes down and therefore, again, you are looking at a 15-17-year kind of cash flow before you are beginning to make money. So, you have to be careful how you buy these utilities.
These are not growth stocks in the traditional sense of the word therefore you have to be buying them at utility valuations. Right now, most of the public sector companies are not trading at utility valuations. They are trading as if they have just discovered gold.