Pick Britannia; PNC Infratech looks interesting: Pankaj Sharma

In an interview to CNBC-TV18, Pankaj Sharma of Equirus Securities shares his views on FMCG space and expects better volumes with Britannia Industries as a good choice.Below is the verbatim transcript of Pankaj Sharma’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.Anuj: I was asking you about Britannia that is one of your top ideas?A: In this space we are seeing a situation where there was difficulty in terms of volume growth for last couple of years. However, in the entire FMCG space we believe that volumes are going to get better. In terms of Britannia specifically I think the impact of competition has not really been that significant. When we look at other companies in the space there is a lot of scepticism about the growth profile of those companies because of new entrances and I don’t think that is going to be the case with Britannia. The company’s margin profile has also been good and we believe that is going to be the reason why Britannia should do well. Of course valuations are not that comfortable at this point, but overall if we compare this sector I think valuations are still okay. In absolute terms you might question them but in absolute terms in the FMCG space you would not really find anything cheap enough. So, on a relative basis in this space I think Britannia is a very good choice. Ekta: Before we get your other picks I just wanted to ask you also about Cadila Healthcare because you look at that stock very closely and they have received that Establishment Inspection Report (EIR) for their Moraiya facility for earlier observations. the warning that is still outstanding. How would you read it as a whole and do you think that may be the resolution for the particular facility is on its way? A: In that space I think we have a problem in terms of what has happened with them and I don’t think it is going to get resolved that quickly and it is going to be a problem in terms of next at least couple of quarters and I am not very sure whether we are going to see a resolution very soon on that issue. That is why I have my doubts on that overall the space itself is struggling but in some of these stocks where we have very peculiar issues like this I think it is going to take a bit more time to get resolution on those important parameters. Overall I am not very sure how this will play out in next couple of quarter and I would probably be a bit negative on the name.Anuj: Let us talk about some more stocks where you are positive. Finolex Cables at current valuations why do you still like the stock?A: That is very interesting because if you see in the entire midcap space even we are struggling big time to find ideas which are good but at the same time available at a very reasonable valuation. In these kinds of times it is always good to probably pay a bit premium and then look at stocks which are fundamentally very sound and solid. Finolex Cable is one of those names. I believe that in the entire space the kind of brand strength they have and the kind of growth we are going to see in next 18-24 months is going to be better than what we are seeing so far. Because of this competitive positioning which is much better and significantly ahead they are versus lot of these players in this space I believe that though the valuations are definitely as we have seen in most midcap names this is also a name where valuation might be a challenge. However, overall because of fundamentals reasons valuation is something probably you can play with a bit. However, overall this is a good name and we think that it is going to get a lot of benefit from the tailwinds which the sector will have. Ekta: What is interesting about PNC Infratech?A: PNC Infratech is a very interesting name if you see in this entire construction space what has changed in last seven-eight years that some of the names which were very strong earlier they have kind of vacated the space because of issues related with the balance sheet, issues related to working capital, issues related with project execution. So, there are lot of new companies which have come off in the construction space and they are doing pretty well. You have examples like KNR Construction; you have examples like PNC which are very strong in particular geographies they are operating in.PNC is one main which is benefiting a lot from the construction activity which is happening in Northern states like Uttar Pradesh, you have Madhya Pradesh these are the states where lot of activities are going on. This is a time when regional players are going to do better than some of the pan India or national player because they have the competitive advantage they understand the geography well, they understand the dynamic well. They have an experience where they are been working with these entities for a long time and they have built a strong expertise to do well in that geography. So, I believe that is the time when some of these regional players will do well and PNC is one of those examples where we believe that because of the frantic activity we are going to see in next two to three years they are going to be in a sweet spot to benefit from that.Anuj: Pharma has bottomed out clearly; Torrent Pharma is the stock that you like, what are the triggers here?A: Torrent Pharma is something very interesting in this space because it is, I would say most underappreciated company in terms of its pipeline. So, when we see the product pipeline of Torrent Pharma, I think it is one of the best because of two reasons one is that they are very innovative and they are spending a lot on the research and development (R&D) pipeline. Similarly, another very important factor for them is that they don’t have those kinds of competition and the competitive intensity is much less in the products they are in and the products which they are currently developing. So, in the entire space it is a pipeline which is as good as anybody else and that is something which is not highlighted enough because of I would say that there is some part which is related with the not enough emphasis by the company and not enough communication by the company, but overall the pipeline is very good.If I had to just look at the pharma space entirely I think Torrent is one of those names apart from Sun Pharmaceutical where I would be very comfortable because I really don’t have any problem in the product pipeline and how they are doing on that space.