People are confusing between specialty chemicals & Pharma
Saurabh pointed out that people are not drawing the correct distinction between specialty chemicals and Pharma. They are assuming that because China is dumping agrochemicals globally and agrochemicals are under pressure, Pharma is also being dumped. However, this is not correct.
“China is dumping specialty chemicals and that is exerting pressure. But in pharmaceuticals, medicines for human beings, there is a shortage. America is going through a massive shortage, for example, of oncology drugs. There is no global glut in the API space that supplies into the pharmaceutical space and the intermediates which go into APIs. We are not seeing price pressure on API,” he said.
He also explained that China makes 70%-80% of the world’s API. If India can grab even 10% of that, our API industry doubles. Indian Pharma companies are not seeing price pressure. There is pressure in the agrochemical space that is a very distinct industry.
Saurabh has always been a fan of Divi’s Lab, the blue-chip Pharma multibagger stock and buys it whenever it is in the doldrums.
“We quadrupled our position in Divi’s Lab in November, December last year,” he disclosed. He also disclosed that he is aggressively buying other API and intermediate companies like Alkyl Amines. “Alkyl Amines remains a large holding for us“.
RHI Magnesita is added to the Little Champs portfolio. It is the next GMM Pfaudler
GMM Pfaudler has been one of the successful stock picks of Saurabh Mukherjea. The stock is up 300+% over the past 5 years. He stated that RHI Magnesita, a small-cap MNC, is walking on a similar illustrious path.
Saurabh explained all the merits of RHI Magnesita in a succinct manner:
“We have added RHI Magnesita to Little Champs portfolio. This is actually very similar to what we did with GMM Pfaudler four years ago. RHI Magnesita makes ceramic lining, brick lining which goes into steel plant furnaces or cement plant furnaces. This is the world leader. They have around 35% share globally. This is the India leader. They have 40% share in India. Good gross margins 40%, gross margins 15%, operating margins around 30% ROC. It is a near debt-free company. It has an Austrian parent listed in Austria. We have invested in the Indian subsidiaries over the last couple of weeks“.
PSU Banks will fallout of favour if there is a NPA shock
Saurabh noted that PSU Banks are outperforming their private sector peers. He opined that this is because the funding conditions have become reasonably easy for the lending ecosystem. Raising money by way of CASA and wholesale market money has been reasonably easy.
“Whenever you have that advantage, whenever getting access to funds is reasonably easy, it is very difficult to separate the men from the boys, the women from the girls. At the moment, the market is saying, why should I buy private sector banks if the PSUs can deliver stellar profit compounding quarter after quarter?”
He warned that this benign state of affairs will not continue for long.
“What we will need is some sort of shock to the system around either loan losses, some development of bad news around credit quality for the market to differentiate between say HDFC Bank and Kotak Bank on the one hand and say the PSU banks on the other,” he said.