Saurabh Mukherjea of Marcellus Investment Managers talked about five stocks he is bullish on in a recent press briefing. These stocks include some of his all-time favourites like Asian Paints and Divis Laboratories, but the main investment thesis hinges around small and mid-sized companies taking on the unorganised players in their respective segments.
This thesis stems from the findings of the extensive data-crunching exercise done by Marcellus, which revealed that out of the 30,000 listed and unlisted companies for which income tax returns were filed, small companies in the organised segment or ‘challengers’ have been the fastest-growing over the past 10 years, from FY12 to FY22 (the latest year for which data was available), racing ahead of even their larger counterparts by taking away market share from small unorganised players, which were struggling to grow post-pandemic. These were also driven by other triggers like the China+One phenomenon.
Here are the stocks Mukherjea is bullish on and why:
Carysil
There is a shift in consumer preference from stainless steel sinks to quartz sinks, which Carysil manufactures. Initially, Carysil produced these sinks for IKEA, but now there is increasing domestic demand as well. "They're more expensive than stainless steel sinks, but they don't scratch or stain, and they fit beautifully with kitchen aesthetics," Mukherjea explained. Mukherjea also said that women in India now have more money in their bank accounts than men, which in turn will drive sales for products like quartz kitchen sinks. A study conducted by the PMS showed that, on average, women have 14 percent more money in their bank accounts than men.
Indo-MIM
Mukherjea said that Apple's iPhone generates around $200 billion annually. In India, they have already increased production from 2 billion iPhones to 20 billion iPhones in just three years, with plans to reach 50 billion. Even though Apple is not listed in India, he said that one can play this theme via component suppliers. An example of this is Indo-MIM, which produces the metal used in making the outer casts of the iPhone.
Narayana Hrudayalaya
Narayana Hrudayalaya, a hospital chain, introduced a low-cost insurance product that provides patients with access to the hospital's services for an annual subscription fee. Mukherjea said that this approach lowers the conflict-of-interest risk that patients often fear: that doctors might add unnecessary items to the bill to increase costs. "With in-house OPD, pharmacy, diagnostics, all this conflict of interest goes away," said the fund manager. He also said that if they scale up well, then this will be a massive differentiation in hospitals.
Divis Laboratories
The US is working to reduce its dependence on China for API manufacturing, which will benefit Indian pharma companies, according to Mukherjea. He said that the global API market is valued at $170-180 billion, with China producing $100 billion worth of APIs and India contributing $10 billion. If India captures just 10 percent of China's market share, the Indian API industry could double in size within three years. Mukherjea also highlighted a shortage of contrast media, a dye used in medical imaging, in the US. He said that large pharma companies could soon turn to Divis Laboratories for their contrast media needs. Plus, over the last three quarters, Divis announced that its Kakinada plant was rapidly filling up with orders for contrast media.
Asian Paints
Apart from proven management and the ability of the business to generate free cash flows, Mukherjea was bullish on the company’s expansion into the home-décor space. He said Asian Paints' home-decor model is better than the conventional method, where home painting projects are often delayed and quality is compromised as laborers go absconding for days, frustrating customers. In the case of Asian Paints, the company guarantees timely completion of projects. This segment offers a new growth opportunity for the company to tap into the unorganised segment, Mukherjea said.
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