Time to buy diagnostic stocks? This is what Hemang Jani has to say

Hemang Jani, Independent Market Expert, says though the valuations of the diagnostics stocks are a bit on a higher side. But in this entire volatile phase, this is a pocket which has given a fair degree of stability and also the numbers have been by and large in line or slightly better. It would be good to have some exposure to names like Dr Lal PathLabs or maybe a couple of other such diagnostic stocks. It will provide a good, stable growth over the medium to long term.

Is GMR Airports a stock which you track?
Hemang Jani: We do not cover the stock. But my belief is that, when there was so much of exuberance and excitement around the midcap and smallcap stocks, this was one of the pockets which created a good visibility because of the kind of assets that they are holding and more importantly, over the last one, one-and-a-half year, the way the company has been able to raise funds through equity dilution despite the higher debt that they are sitting on, definitely means that there is going to be a good amount of stability when it comes to their balance sheet.

As a midcap play, this would be a high beta stock because of the high debt, but surely it would merit a look into it and we do have this as a midcap stock in some of the portfolios that we are recommending.

Have you looked at Metro Brands and VIP Industries closely? I ask you that because quarter after quarter Metro Brands continue to disappoint with its earnings. Even if you look at VIP Industries, we are all talking about tourism and how everybody is still carrying on with their revenge travel phase, but the company actually reported a loss this quarter.
Hemang Jani: The VIP story has not played out for almost two years. It has actually missed the entire bull run that we have seen in the last one, one-and-a-half year and the performance also has been lagging behind despite the way travel tourism has boomed. So, while the brand is looking very good, the valuations are looking quite compelling, till we see the actual print in the numbers, maybe people are not participating, so would avoid at this point.

As far as Metro Brands is concerned, it has been performing quite well. Last two quarters, the growth has not been that good, but we do like that story. Within the entire space, this is one company which has a better range, better margins, and very high return on equity. So, any meaningful correction in Metro Brands would be providing a good entry point.

What about the diagnostic stocks? It has been a while that anyone has spoken about diagnostic stocks. Both Thyrocare as well as Dr Lal have posted better than expected earnings. There was a time when you had the concerns about price war creeping in for the diagnostic space. It looks like one has also taken a backseat. But the problem is the valuations are high.
Hemang Jani: Yes, I do think the valuations are a bit on a higher side. But in this entire volatile phase, this is a pocket which has given a fair degree of stability and also the numbers have been by and large in line or slightly better. More importantly, the management is saying that the overall stability in terms of pricing and the way many companies are expanding would provide a good amount of growth.

So, it would be good to have some exposure to names like Dr Lal PathLabs or maybe a couple of other such diagnostic stocks. It will provide a good, stable growth over the medium to long term.

There was a reason why one should have not expected anything big from the Hyundai IPO. But there is a reason why one should also not ignore it for long considering the potential of compounding it has to offer in three to five years. Can Hyundai be a portfolio stock now?
Hemang Jani: While Hyundai’s brand visibility and its overall financial performance is quite compelling, when you look at the return on equity, etc, it is amazing. The only point that I was a little worried about is that last year, while the market grew at a decent rate of growth about 7% to 9%, this company somehow did not deliver in terms of growth despite having a very high component of the SUV portfolio which is a high growing market.

So, my concern is that when the companies are commanding such valuations, when you have an intervening period of slow growth or certain pockets they lose the market share, then the market may punish them. I would not be comfortable buying into it. If there is any major sell-off or weakness, surely this will be one stock that will be there on my mind which one can really look at entering into. But otherwise, we can go with our normal Maruti, Mahindra, some of the two-wheelers, those are the names that I would go with at this point of time.