Metal Stocks: Avoid metal, go for cos which benefit from lower commodity prices: Dipan Mehta
Media as a space has seen a lot of consolidation and a lot of news. What is the way forward?
See, media per se has to consolidate because they are facing huge disruption from the OTT players and some of the other digital challengers. In order to protect their turf and cash flows, they have to consolidate because they also need to invest very heavily into content to take on the charge which is coming through from the OTT players, especially the international ones like Hotstar, Disney as well as Netflix.
So while this disruption is on, I do not know whether the sector will perform as well in terms of financials as well as returns. I would say that right now, we are in the wait and watch mode as far as the media industry is concerned. I was not that impressed with the results which came from Zee or
for that matter.
One is better off with exhibition companies or some of the gaming companies as well or Nazara and just wait and watch as far as traditional media giants are concerned. There is some amount of churn happening over there and until we see some kind of stability and them gaining market share against the OTT players, I would not like to extend myself within the sector.
What is your take regarding the entire pharma pack? I am specifically talking about the hospitals and diagnostic names. There is a bit of a divergent move. While is up around 5%, has been caught in a down trend. How are you looking at the entire sector?
By and large, post the lockdown being over and done with, we have seen a good performance coming through from the hospital industry across the board. I think even the small, medium players have had a good December quarter and March quarter as well. There were high occupancies and the medical procedures again went back to pre Covid levels or so.
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Valuations wise, the sector is now at a more or less reasonable level. I am quite positive on Apollo Hospitals. I know there have been some delays as far as their digital initiatives are concerned, but that notwithstanding, the traditional hospital and pharmacy business still continues to remain quite strong.
They are seeing higher and higher productivity of assets, capital allocation policies have improved over there and valuations, although on the expensive side, are cheaper than what they were maybe six months or a year ago or so. Generally, we are positive on the healthcare sector and maybe hospitals are a better way to play than some of the diagnostic companies where I think valuations are a bit of a concern, keeping in mind the emerging competition coming in from very deep pocket players over there.
On the other hand, hospitals are a different business where you need to set up the infrastructure and these are long gestation projects and now I think the existing hospital companies have many mature assets which are delivering very good cash flows.
What about the metals basket, is there anything that you would look at within the space?
Not really. I think we remain negative on metal stocks at this point of time. I think this kind of a war which the central bankers are playing out as far as inflation is concerned is going to impact metal companies per se. We saw the move that the Indian government made to try and cool off steel prices over here.
In any case, prices have softened, end product prices have softened, volumes also have kind of flattened out and next two, three quarters we will have the negative effect of base effect also. So keeping all of that in mind, valuation wise they are attractive, dividend yield wise they are attractive but considering that one cannot expect much growth in their earnings over the next two, three years or so. I would like to remain underweight on metal stocks.
Auto companies are the big beneficiaries of softer metal prices. One could look at appliance companies, industrial companies, engineering, construction and real estate. The strategy has to be to go for companies which benefit now from lower commodity prices rather than going after the commodity players whichever sector they may be in.