In his interview to ET, Ravi Dharamshi has identified the following as the favourite stocks in his portfolio:
(1) Cipla – Probability of making fantastic absolute returns is very high:
The policy of the previous top management not to address the US market has changed. Now, there is a stated policy to attack the regulated markets. About a month back, they got approvals for inhalers in Germany and the Irish market. This is a precursor to the opportunity that they are going to address in the inhaler space. This is a US plus Europe combined $20-billion opportunity and this can convert potentially into a billion dollar of generic sales for Cipla over the next five years.
It would be a mistake not to own Cipla. From a three-year, four-year point of view, the probability of making fantastic absolute returns is very high in Cipla.
(2) Marksans Pharma – multi-bagger gains possible:
Marksans Pharma has a promoter who is hungry to perform. It had problems with BIFR and is coming out of a very problematic place. It is in a sweet spot where it is addressing the OTC generic market in the US. That is a space which is not very competitive. It is a small space, but it is large enough for them to be able to grow to a Rs 2000-3000 crore kind of a size from the current Rs 500-600 crore.
(3) Amara Raja Batteries – Will become leader in auto batteries:
Amara Raja Batteries can deliver 20-25% CAGR in earnings even from here. They had just embarked on their life’s biggest capex which has just completed and the benefits of that are going to accrue now. Exide had lost out the market share in the replacement side & their strategy on the pricing front was questionable. Amara Raja has taken advantage of that. Amara Raja is very close to becoming the leader in the segment. I would not be surprised if in the next three years, Amara Raja is the leader and Exide is the follower.
(4) MCX – A wonderful business:
Exchanges are wonderful businesses. They have 50% plus margins, one building where essentially servers are kept and they collect money on each and every trade that is executed. They have 1000 crore of cash on their books and a Rs 4200-crore market cap.
Buying MCX today is like buying the National Stock Exchange in the early 90s when it was still in a development phase. Commodity markets are not opened to the financial institutions or FIIs or there are no products beyond one month or options. There is so much development that can take place. Now you have a vehicle that has survived all adversities and it is in the hands of a very good promoter (Kotak).
(5) Kitex Garments – Fantastic returns expected like from Page Industries:
Kitex Garments, an exporter of infant wear, has been doing well. Though the stock has gone up from 50 to 500, it can give fantastic returns even from here. For example, Page Industries is quoting at a 10,000 crore market cap with a FY14 PAT of 150 crore and expected PAT of 200 crore in FY15.
Kitex Garments will transform itself from an infant wear garment manufacturing company supplying to the Gerber and Walmarts of the world to having its own brand over a five-year period. If it succeeds, then in five-year’s time this could be a company with Rs 200 or 300 crore kind of profits and entire brand sales.
We have lots of conviction and belief in promoter Mr. Sabu Jacob and he knows his game better than anybody else and he is very confident of achieving that.
(6) HDFC Bank & ING Vysya – Great Franchises:
Private banks are a great franchise and are worth the price. They will appreciate even from here. The ROEs at this point of time and ROAs are probably somewhere between 1.5 and 1.7 ROA and 15% to 17% ROE. They will improve further with growth, the cost under control and with improvement in those ratios the price to book multiple can expand further from here and they are going to take away market share from the public sector banks.
(7) United Spirits – Structural story:
India is a young country. The culture of social drinking is just beginning and everybody is moving up the curve as the branded liquor, spirits is catching up now and this is the best play possible in the market. Diageo has shown its commitment by investing Rs 19,000 crore. Now they are going to shift their existing private entities business into United Spirits. So there is no question of the lack of commitment. United Spirits should be a part of core portfolio because it is a structural story. You will not get it cheap. You should see what happened once Heineken took over United Breweries.
(8) Core stocks to keep & forget in the portfolio:
No investment decisions should be taken based on one particular event – whether this government comes or that government comes. It has to be a quality company and it has to be available at a good price. Stocks like Cipla, Aurobindo Pharma, HDFC Bank, Infosys, United Spirits form part of the core portfolio and you should not touch them for the next five years.