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trust | Reliance Stock Price: What Could Be the Next Big Trigger for Reliance? Deven R. Choksey explained

“Within the pharmaceutical industry, a specialty generics business and the API and CRAM business are driving companies. You can selectively look at some of the companies from an investment perspective,” he says Deven R ChokseyMD, KRChoksey Holding


I don’t know how closely you track the fertilizer place, but there’s definitely something of a buzz.
On the one hand, the input costs for the industry in general have definitely increased and most companies would suffer from cost pressures. On the other hand, their dependence on the state could certainly be even higher for cost recovery if they are not allowed to pass this on to farmers.

In a given situation like this one will watch how the government reacts to this particular situation and whether they will subsidize farmers and give businesses their reasonable costs remains to be seen. Cost pressures are clearly not a good sign. Profit margins are likely to be impacted for most companies. It may not play out in a quarter or so, but after that, starting in the June quarter, there will be cost pressures on margins.

Business-wise, most fertilizer companies are in very good times. But they depend on the government to subsidize farmers and give companies the right price. You’ll have to keep an eye on that.

What is the next big trigger for Reliance to take it above Rs 2,700?
Reliance is poised for higher growth across its verticals – the Jio vertical, the retail vertical and the overall oil & gas vertical are also showing district signs of higher earnings growth year-to-date 22-23.

In my view, the renewable business the company is implementing could be the next kid on the block that could take on higher valuations. As far as I know, new investments of Rs 75,000 in this particular area have the potential to generate around Rs 40,000-50,000 worth of EBITDA and around Rs 2,000-2,500 million in revenues.

That’s one thing we’ll probably have to wait a few more years for, but other than that it’s promising. The Jio, and the retail store in particular, is the value-added preposition for Reliance investors. How soon, how quickly, when it will happen will be announced this time at the Annual General Meeting. Those are a few things we’re keeping an eye on, but other than that, the company’s business remains pretty strong.

I believe that CAGR growth of about 25% in both stock earnings and share price over the next few years is quite possible in the future.

Where do you stand when it comes to cars? Do you think we will likely see an increase in volumes in the future?
The car companies are in a good position. They are experiencing very strong demand. Most companies have good order books for their vehicles and there is a wait due to semiconductor supply constraints. As we understand, the semiconductor restrictions are in place, but at the same time they are being relaxed to a greater extent.

Some companies were also given direction by June/July of this year. They expect a good relaxation on the supply side of semiconductors. As demand remains stronger, automakers could potentially have a better time relatively.

Within the auto companies, the two wheelers would be the most vulnerable as the two wheelers would probably be the most sensitive to the increase in fuel prices and at the same time increase vehicle prices, while I think the biggest beneficiaries would be commercial vehicles.

CVs would have two advantages. An important benefit this year is that the scrapping policy will come into force, creating additional demand for commercial vehicles. The second most important benefit that the commercial vehicle would have would be increased spending on infrastructure and PLI programs in the industry, which could lead to better freight movements around the country and lead to greater demand for commercial vehicles.

They would be relatively less sensitive to price increases. So I would put my weight more on commercial vehicles within the auto sector and would like to think that things are likely to get relatively better for the car in general, but for commercial vehicles in particular, in the future.

Has pharma changed decisively? Sun Pharma surpasses, Natco is back, Granules, even Laurus is making a comeback.
Selective when you look at some of these companies you mentioned including Cipla. There are two main triggers for these companies, and one major trigger has been the specialty generics these companies have launched. The companies that have specialty generics have another benefit in the form of a better margin that they make, aside from bringing a new product to market.

They create their own category in it, and so Sun, along with Cipla, is largely driven by this particular opportunity. Another business model of Laurus and Divi is the business model of APIs and formulations. The API business is relatively more stable. You are relatively less affected by increases in your commodity prices since your customers buy them at cost. So they get that benefit. The companies involved in the CRAMs (contract, research and manufacturing) business also perform relatively better.

Within the pharmaceutical industry, a business with specialty generics and the business with APIs and CRAMs are driving the companies. You can selectively look at some of the companies from an investment perspective.

Zomato and Slippery were found guilty of cartel formation by the cartel authority IHK. It is a 14-page order. But now we’re seeing New Age stocks come back. So what would be your strategy?
I think the amount of regulation they face is good because it will allow the industry to mature over time and both Zomato and Swiggy have created their own space. So from the food aggregator model to the retailer model that has created certain regulatory aspects and would mature over time.

In the near future, however, regulations could also have a negative impact on these companies. So it’s a double-edged sword. In my view, I probably wouldn’t buy it until we see the company making sustainable gains. Maybe the price has corrected, maybe they’re becoming an acquisition target for someone who wants to fundamentally connect their supply chain to the distribution they’re creating, those might be some of the opportunities on the inorganic side.

But on the purely organic side of doing business, you want to see how they sustain the business and how to make a profit out of it.

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Adam Bradshaw

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