CG Power continues to strengthen its manufacturing footprint, with the company recently inaugurating its S3 unit in Nashik. The expansion is expected to double switchgear production capacity from 9,000 units to 18,000 units, marking another milestone for a company that has emerged as one of the market’s biggest multibaggers over the past five to six years.
While the capacity expansion underscores strong demand trends in the power equipment segment, Sandip Sabharwal believes investors need to look beyond the headline growth story and focus on valuations.
“The new capacity is for switchgear, which is just a part of their business. Overall, CG Power has been doing well, and both the key business segments of the company have been firing,” Sabharwal said.
However, he cautioned that companies such as CG Power, Hitachi Energy and GE Vernova have witnessed a significant rerating, pushing valuations well beyond traditional measures of fair value.
“The key challenge in buying many of these companies, which include something like CG Power, Hitachi Energy, or GE Vernova, is that their valuations have run way ahead of any sort of fair value you can ascribe to these companies. All these companies are trading at price-earning ratios much above 100 times, with sort of blue-sky projections of earnings growth for the next few years, which many analysts are justifying to give buy recommendations at these prices,” he said.Sabharwal added that investors who entered these stocks at lower levels have little reason to exit, but fresh buying at current valuations may not be prudent.”So, I would say that all these companies, including CG Power, are at a stage where, for someone who holds them, who bought them early enough and holds them, and some of these stocks we also hold from earlier levels, there is no reason to sell. But at these price levels, I would not venture out to buy these companies.”
Power Equipment Stocks Already Pricing In Future GrowthThe sharp rally in transmission and distribution (T&D) stocks has sparked debate over whether the market is fully appreciating the scale of infrastructure investments expected over the next few years.
Sabharwal disagrees with the view that the market is underestimating the opportunity.
“So, I do not think the street is behind the curve because the valuations more than reflect whatever is going to come in the future. I would say the street is rather ahead of the curve, where the valuations being ascribed to these companies are not justifiable under any sort of growth projections,” he said.
According to him, current stock prices imply extraordinarily high earnings growth assumptions over a prolonged period.
“For these valuations to be justified, these companies need to grow earnings by 50-60% for the next 10 years consecutively, which is very tough. The next couple of years might still see decent growth, but beyond that, the growth obviously will slow down.”
He reiterated that existing shareholders can continue holding these stocks, but new investors should wait for meaningful corrections before considering entry.
Wockhardt’s Zaynich Approval Excites Markets, But Near-Term Upside May Be LimitedPharmaceutical major Wockhardt has been one of the standout performers in recent weeks following excitement around the approval of its antibiotic candidate, Zaynich.
While acknowledging the significance of the development, Sabharwal believes the market may have become overly optimistic about the immediate commercial opportunity.
“So, the market got excited because of the approval, which obviously it should have because it is a great achievement. The scale-up, the pace of the scale-up, and the extent of opportunity initially could have been misunderstood,” he said.
He noted that while the long-term potential remains substantial, commercialization and market development will take time.
“Longer term, obviously, the opportunity is there, but it will take time for the market to build up, and many short-term investors could lose patience in the near term also.”
Sabharwal maintained that the stock’s recent rally has already factored in much of the near-term benefit from the approval.
“My view was that it more than factors in whatever has happened for the near term. The near term could be the next three to six months. It will be very tough for the stock to move up further immediately just based on this product approval.”
He expects the stock to consolidate before any fresh upside emerges, depending on the product’s commercial success and subsequent developments.
Airline Route Cuts Reflect Industry PressuresThe aviation sector is also facing challenges as airlines scale back certain international operations amid elevated fuel costs and weak seasonal demand.
Sabharwal pointed out that the industry is entering a traditionally softer travel period during July and August, making route rationalization a practical response to prevailing conditions.
“So, in any case, we enter a lean season of travel in July and August, and in this period, given the high fuel prices and the fact that the routes tend to be competitive on pricing, many of these companies are cutting down on these operations.”
While the development is not positive for the industry in the short term, he believes stronger players are likely to emerge with enhanced competitive positioning.
“So, it obviously is not a positive development by any standard of imagination, but tougher times make the stronger companies stronger.”
Sabharwal highlighted InterGlobe Aviation, the parent of IndiGo, as one of the beneficiaries of this trend due to its strong balance sheet and substantial cash reserves.
“What this actually does is that, given their huge cash reserves and resilience of the balance sheet, this actually makes InterGlobe Aviation stronger for the long run.”
He added that while the stock may remain volatile amid fluctuations in crude oil prices and geopolitical developments in the Middle East, the company’s long-term outlook remains favourable.
“The stock will keep on being volatile, moving up and down based on how the underlying crude prices are moving and tracking the Middle East conflict, but the longer-term prospects will remain strong.”
-1024x683.jpg "Midterm Battle Lines Drawn in Arizona")
