We earlier talked about some developing ideas for 2013. This post is to discuss them in more detail.
Caplin Point (BSE: 524742)
This seems to be a very interesting pharma company at an early growth stage. We have been tracking it for some years but it really caught our interest when we received its FY12 annual report few months back. Few snapshots:
The interesting thing was that the company’s topline had grown by almost 35% in 2012, and yet the efficiency improved. The inventory and debtors remained at very low levels, debt reduced and the cash on balance sheet increased. The company has been getting efficient over the last few years:
The most intriguing part was the major increase in current liabilities. Going to the schedule we noticed that the company is getting substantial advances from the customers:
So for a 110 Cr turnover company, getting a 30 odd Cr advance is extra-ordinary. If this can be maintained then this could be a very interesting story.
The company’s business model is that it has created a niche for itself by offering a basket of products and by having a high number of product registrations in small markets in South/North America. Due to its product range, the company is able to get advances from the distributors there. However, the risk is that these are small and unregulated markets and hence things can change over a period of time. The company is trying to mitigate the risk by undertaking a new expansion in the area of “sterile specialty products” and “hormone ineluctable” in line with US, EU & UK-MHRA requirements.
The projects cost is estimated to be about 75 Cr and if the company is successful, it can go to a new level. Here are the details – http://www.caplinpoint.net/cpIV.htm
1. The valuations are not cheap and hence if things don’t pan out as expected, corrections can be sharp.
2. The company is at an early stage and hence things can change quickly.
Poddar Pigments (BSE: 524570)
Poddar is one of the largest company in the masterbatch industry. Masterbatches are additives used to impart color or additional properties to polymers.
If one looks into the track record of the company, it has been delivering a consistent growth and has developed a good balance sheet.
It seems to be a safe value pick at these levels of Rs 52, due to attractive valuations:
1. The company has been delivering a consistent growth of 20% in topline and much better bottom-line growth.
2. The stock is trading at just 5 PE.
3. The stock is offering a dividend yield of 3.90%.
4. The stock is trading at 0.80 times FY12 book value of 63.
Brief Quarterly Updates
Ajanta Pharma (BSE: 532331, NSE: AJANTPHARM):
We discussed about Ajanta Pharma recently and the company has come out with fantastic Q3 results. We feel the company is moving into a new orbit and due to improving performance, companies of this size and quality can get re-rated further. Also, its not easy to get good growing pharma companies with brands etc. below 15 PE multiple. We feel one should continue to hold the stock and try to buy on declines.
MPS Ltd (BSE: 532440, NSE: MPSLTD):
We also discussed about MPS Ltd recently. Capital market too has covered the stock in its latest issue and gives a good insight. We feel the stock could provide positive upsides and on the other hand be a good defensive stock too due to high dividend payouts.
Among new ideas, we are working on Orbit Exports. It seems to be an interesting company having a niche in high end fabrics. The company is one of the largest exporter of jacquard fabric from India and they have doubled their capacity last year.
Caplin Point Annual Report for 2012 (highlighted and annotated):
Poddar Pigments Annual Report for 2012 (highlighted and annotated):
We look forward to the discussions and comments from our readers on the above stocks.