On the EMS space, Sabharwal played down expectations of any meaningful Budget-led boost for the sector. While recent results from some companies have been in line with expectations, he questioned both the quality of earnings and the sustainability of growth.
“I do not think Budget can aid the growth of these companies in any way. So, they have been given enough PLI benefits, etc. Now they are of their own. I do not see how the numbers were exciting because the growth was not there at all and whatever growth in profits has come up, it is because of other income. And if you actually remove PLI benefits, my guess is that the company would not be making much profits at all. So, even at these prices the stock trades at 50–60 times earnings. I do not think such companies deserve to trade at 50–60 times earnings,” Sabharwal said.
ET Now also pointed out that Dixon has cut its mobile phone production guidance to 30–35 million units from 40–45 million earlier, citing weak Q3 sales. Sabharwal said this slowdown raises questions on valuation support.
“For the valuations to hold up, growth has to be there because without growth, the valuation of such a company which operates at wafer-thin margins and banks on PLI benefits only is very tough. Now as the PLI benefits for mobile phones wind down, we are seeing growth getting wound down there. So that also brings into question the entire PLI story because if companies are going to get into some segments where they get PLI benefits, then as the PLI benefits end, they move to some other segment where they are getting new PLI benefits. It really does not aid in long-term manufacturing capacity creation. So, in some sectors we might see positive benefit due to PLI, but in many others we are going to see this kind of opportunistic moves which companies are going to do and as such we should not ascribe very high valuations to such companies,” he said.
On oil and gas, Sabharwal noted that rising crude prices have started to reflect in stock performance, particularly for ONGC, which had underperformed earlier despite low valuations. “We had actually taken some bet on ONGC seven-eight months back but the stock was not moving at all because of the expectation that crude prices could be bottoming out. So, it is bouncing back now. Now, the sustainability of crude oil price spike will depend on how the entire Iran saga plays out, of which it is very tough to predict. But because valuations are very cheap, we are seeing some reset on valuations,” he said. Sabharwal added that while other commodity stocks had already moved up, oil companies were now playing catch-up.
“I would think that a potential move towards 300, 320 is something which is possible but beyond that will depend purely on how the crude prices move because as a company, ONGC specifically is not a very efficient company in terms of like the production has been continuously declining only over the years. It is just a pure commodity price-related play. So, I would like to play it till those levels and if we get those, maybe exit,” he said.
On Paytm, despite marginally better-than-expected profitability, Sabharwal remained cautious on the outlook, citing structural challenges.
“They are going to take a hit because of the payouts, for whatever those are called, the UPI payout being removed and those benefits going out. Most of the profit is coming from the selling of financial products where they earn commissions out of that and that is a very low PE business. So, I do not think you can give a very high PE. So, reported profits and how the profits come and the future outlooks — there is nothing exciting per se about this company. So, I have seen target price of 1700–1800 but I do not know. I would not be too bullish,” he said.
Overall, Sabharwal’s comments reflect a selective and valuation-conscious approach ahead of the Budget, with limited enthusiasm for high-multiple EMS stocks, a tactical view on oil plays, and a restrained outlook on fintech profitability stories.
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