Moneycontrol
Jul 19, 2017 12:15 PM IST | Source: CNBC-TV18

HDFC Sec sees value in pharma; expects 250-300 bps expansion in HUL margins

Dipen Sheth of HDFC Securities believes that pharma firms will overcome the regulatory concerns going forward. He prefers HUL in FMCG pack.

Pharmaceutical stocks were trading in the green Wednesday, following a string of approvals by the US Food and Drug Administration (FDA), and muted valuations.

According to Dipen Sheth, Head of Institutional Research, HDFC Securities, the pharma sector has comforting valuations as it has been a solid underperformer due to pricing pressure in the US, quality of pipeline and regulatory issues, among others.

“We firmly believe that pharmaceuticals space is in the value zone right now…the valuations are comforting…Many companies will overcome regulatory challenges,” Sheth told CNBC-TV18 in an interview.

Sheth also highlighted the period of soft consumption that FMCG is going through. Given the circumstances, the performance of HUL is exciting, he said. Going forward, even though the valuations are high, there could be a margin expansion of 250-300 basis points (bps) for Hindustan Unilever, he added.

In the cement sector, he said ACC had the advantage of newly-commissioned capacities. Currently, it was at half the valuation against UltraTech. But, Sheth is not impressed. Core operating metrics are weak and operating cost structure are not appealing, he added.

Watch accompanying video for more details.

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