Where do you see the insurance sector moving ahead and which are your top favourites?
Deven Choksey: The private sector companies have been thriving on the product innovations, they have been thriving on the high value added product at the same time, and also adopting the digital approach in expanding the marketplace. The cost of acquiring a customer remains comparatively lower in their case. Given that situation, I think they deserve to be premium ranked which they are currently. The embedded value to EBITDA ratio that we look at in life insurance remains comfortably high for some of the private insurers compared to LIC.
In my view, the growth momentum is expected to continue for a couple of reasons. One, the new income tax exemptions have started coming in this financial year, wherein the tax rates are not likely to apply till the amount of income is up to Rs 12 lakh and that is where the higher amount of surplus remaining in the hands of individuals would possibly find its way in some of the financial products including the life insurance.
In this scenario, the private sector companies remain relatively more favourable from the growth perspective also because of the fact that their base is giving them an advantage at this point of time. Would we immediately buy some? The answer is yes and no both. Valuation-wise, some of them have already started scaling up. We find good potential in the likes of SBI and HDFC Life and also Bajaj Life Insurance business. We like those businesses from an investment perspective.
What about the pharma sector? It has been steadily gaining market momentum, but I believe the market is not factoring in the big tariff overhang on pharma. What are you making of this space?
Deven Choksey: That remains uncertain for sure, till the time we get full clarity on it. But leaving that aside, how are Indian companies strategizing their presence across the globe? On one hand, they are bringing out the specialty generics, the complex generics that some of the large companies like Sun Pharma, Cipla, Dr Reddy’s among others are registering their presence in. The complex generics drugs are giving them the advantage of pricing power.
As far as the pricing is concerned on this particular drug, because they are not competing with pure generic, that is a positive for them and most of these companies are expanding their portfolio on that side.
The second positive which is going in is API business, which is again very comfortably getting merged into the formulation business some of the global peers, the large pharma companies, and again Indian companies including the likes of Divi’s, Laurus, and even the other majors. Last but not the least, on the margin front, since the input cost scenario is improving, most of these pharma companies are seeing better margins in the current financial year vis-à-vis previous years. So, we remain distinctly confident about the prospects going forward despite the tariff turbulence. Once that is out of the way, some of these companies could get rerated.
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