Alembic Pharma Q&A and other updates

Alembic Pharma Management Q&A

We have an US CEO who has been with us for last 5 years and assembled together a top Team in International Generics business. Success has come because of Product Identification ability. Year-wise market-wise plans are drawn up till 2024

We have built a strong IP Culture/Team over last 5 years or so.

We have been following Alembic Pharma for last few quarters. We mentioned about the company in our Diwali post.

Alembic Pharma is among the oldest companies in the Indian pharma industry. But no major developments took place over the last decade as the company was more into the domestic markets, and limited to the anti-infectives, cough and cold segment which are highly competitive and matured. Over last 2-3 years there has been a contrasting change in the company. The revenues are growing (earlier the growth was 10% now it is 20-25%), the margins are expanding (earlier margins were 13-15% now it is 18-20%) and the balance sheet is getting stronger and efficient.

Reason for the change is the shift towards the international generics. This segment is expanding quite quickly for the company – from about 100 odd Cr in 2010 to 235 Cr in 2013 to 450 Cr in 2014 (expected). This segment has a potential to scale up to 1000 Cr turnover over the next 2-3 years given a strong product pipeline prepared by the company. Alembic Pharma has filed 60 ANDAs (just 18 five years back and 31 are approved till date). On the domestic side, the company has been entering the specialty segments such as Ophthalmology, Cardio, Anti-Diabetic etc, which have a higher growth and a better margin.

Another key thing to observe is the high spend on R&D and yet improving margins and profitability:

Particulars 2011 2012 2013 2014E
Sales 1,192 1,460 1,520 1880
NP 85 130 165 240
R&D Exp 47 59 74 115
R&D Exp as % of Sale 3.95% 4.01% 4.84% 6.12%

ValuePickr team has conducted an in-depth management interview and we would recommend our readers to go through it for more insights. (Might require a free login.)

Quarterly result updates:

1. Ajanta Pharma: The company has once again posted a superb set of numbers beating the best of the expectations. The investor presentation provided by the company is highly informative about the business model and one should have a look at. Going by the numbers, the company may end the year with an EPS of about 55-60+ and stock becomes attractive at about 900 levels. One risk to watch out for is the sustainability of margins going forward.

2. Avanti Feeds: The company has posted a stellar set of numbers. Due to the several risks which popped up during the last couple of quarters, we were expecting earnings to get temporarily hit but the company has posted an all time best quarterly result! The company has been able to maintain the 90% CAGR growth rate of over last 3-4 years. We feel the company has good potential even from current prices.

3. Atul Auto: The company has been able to maintain the growth rate at about 18-20%. It is remarkable to see the company growing and gaining market share in such a challenging environment wherein most of the other players are experiencing pressure on margins and reporting a negative growth. Atul Auto has robust cash flows and is focusing on expanding its dealer network and penetration in new states. Given the current capacity, the company has potential to increase its turnover by another 25-30% without incurring any substantial capital expenditure.

4. Astral Poly: Astral has been one of our best performers and a multi-bagger stock. The company has again delivered a 30% growth. Due to the reduced forex volatility, the forex losses too have come down a bit. The stock has undergone a lot of PE re-rating and the stock is trading at about 27-28 times FY14E earnings now. Though there is still a visibility for growth in coming years, we start getting cautious at high PE multiples. One may do small profit bookings on rises.

5. Canfin Homes: The company has once again posted a superb growth of 50%+. The current management has been doing excellent work but the stock is not getting its due recognition due to the fear of a PSU tag. If we look at the financial ratios, the Gross NPA are very low at under 1% and falling continuously. We feel the valuations are attractive and the stock may do well.

6. GRP : GRP had been going through a very rough patch over the last 1 year due to the demand slowdown and the capex done last year at Tamil Nadu. On the positive side, the things seem to have stabilized and the company is recovering quickly. GRP has delivered almost 30% topline growth in this quarter though the margins are still under pressure. Its tough to take a call as to how soon the margins will come back but we continue to be optimistic about the long term horizon.

7. Oriental Carbon: The company has after a long time come out with a very good set of results. We feel the right way to look at the numbers is to look at the earnings for the 9 months of FY14 till now. The earlier quarterly results were subdued due to forex provisions and this quarter results are better due to some forex reversals. Company has been a beneficiary of rupee depreciation and should see better margins going forward. One key risk is the pending court case on the Mundra plant.

8. Selan Exploration: In the last post we mentioned about Selan. In the Q3FY14 results, though the numbers are flat but by way of notes to accounts, the company has confirmed that it has drilled 6 new wells and further activities are happening. Its a big positive as the company used to do a production of around 2.50 Lac barrels per annum till 2010, but due to lack of regulatory approvals for new drilling over last 2-3 years and oil wells being “declining in nature” the overall production fell each year for last 3 years.

Year Crude Oil Gas YOY Growth
2006 73875
2007 1,00,963 36.67%
2008 1,20,226 19.08%
2009 2,82,745 135.18%
2010 2,38,140 4,56,540 -15.78%
2011 1,85,559 46,12,264 -22.08%
2012 1,68,041 71,50,928 -9.44%
2013 1,63,944 71,64,608 -2.44%

Since the approvals have started coming in now, Selan might be able to scale up production to 5 lac+ barrels per annum over the coming years. One should keep a watch of this company.

  • rajesh

    as per ayush tweet–

    #Avanti Feeds crosses 350! A #tenbagger from the intial post http://ow.ly/tuDQD 🙂

    can a stock become tenbagger after booking profit?

    http://dalal-street.in/avanti-feeds-mpeda-announcements/

  • DeepakkumarPrasad

    Thanks ayush & Pratyush.

    Do you also see some value in Alphageo when compared to Selan

    -Deepak

    • Ayush

      Not much idea about Alphageo….not tracking it.

      But there is a lot of difference in the business model of both the cos. Selan has proven oil fields and the growth will come by way of more drilling and extraction. While Alphageo is a service provider for carrying out seismic data activities and its growth will depend on winning new contracts etc.

  • Ayush

    Hi Rajesh,

    In the last post, I had advised reducing exposure and not a complete exit as the MPEDA announcement was quite concerning. However in few days based on the industry feedback it seemed the impact is limited…the details have been provided on the valuepickr thread of the same. It was mentioned that one may continue to hold but with not very high allocation.

    Hope it helps.

    Regards,
    Ayush

  • Ankit Gupta

    Rajesh,

    Ayush had said to book some profit and reduce the exposure. He never recommended to get out of stock entirely.

    Regards,
    Ankit Gupta

  • Rajarshi Dhar

    Hi Ayush,
    Even Repco is also having a PSU tag associated but the market is rating it at a much higher P/E (3.5 times) than canfin. I guess the market is waiting for an exceptional quarter from Canfin which can only happen when the macro situation will improve. Your thoughts would be apreciated.
    Regards,
    Rajarshi

    • Ayush

      Hi Rajarshi,

      I think Canfin is already reporting very good nos.

      Repco is a much higher quality company with a niche of its own. It is bound to get much better valuations from the market.

  • vinay

    Hi Ayush,
    I wanted to ask if there is any update on Lumax auto tech’s new plant in Bangalore for HMSI. I hold a few shares, is it possible to call up the company and ask. Also, should one buy more lumax auto tech at current levels

    • vinay

      Thanks
      Vinay

    • Ayush

      Hi Vinay,

      The plant had got operational sometime back however, there hasn’t been any major growth from this plant and it seems it will take sometime due to the slowdown in auto sector.

      The stock has value at these levels…one may buy on declines.

      • vinay

        Thanks

  • mallikarjun

    Hi Ayush

    Regarding Premco Global what may be the fair PE for the business they are in..

    Regards
    mallikarjun

    • Ayush

      I think it should get 4-6 multiple if it can grow at a decent pace with the recent margins.

      • mallikarjun

        thanku Ayush

        Regards
        mallikarjun

  • Anil

    Hi Ayush,

    On alembic, while your conversation with management did they mention the % revenue or profit contributed from Desvenlafaxine (the generic version of Pristiq which was launched in collaboration with Ranbaxy). Am asking because the revenues of this Desvenlafaxine has just ballooned in January compared to last 9 months. I have access to weekly sales data, so was inquisitive.

    Thanks

  • Kunal

    Hi Ayush,

    What you view on MPS at current cmp? I’m thinking of entering into stock with 2-3 year perspective. Recent Q3 nos have been good and company is expected to grow at high growth rates.

    • Ayush

      We continue to hold MPS and it has done really well. Need to see how sustainable the current growth will be going forward.

  • stockarchitect

    Need view on the concept of Artificial intelligence and social stock market investing

  • Sandeep

    Ayush,

    Any views on SPARC as a multibagger?

    • Nasirul Amin

      Hi Sandeep,

      If you are talking about Sparc Systems Ltd.

      I think it’s too small and loss making company to track right now. Do you have any special reason to look at it? Any idea why it will multiply sooner?

      Thanks,

      • Sandeep

        Hi Nasirul,

        No. I was speaking about Sunpharma Advanced Research

        • Nasirul Amin

          I am tracking it but I want to see some more positive and profitable quarters. I believe I can enter later. For now I am more inclined towards Suven, Alembic & Ajanta in Pharma.

    • Ayush

      Have heard very good things about the co….but can’t figure out how to value the same.

  • Rajiv

    Hi Ayush,

    Any thoughts on Cinemax and Eros International?

    Thanks,
    Rajiv

    • Ayush

      Sorry, not tracking them

  • Amit

    Hi Ayush,

    I see you have exited Kaveri Seeds. Any reason for the same?

    Regards
    Amit

    • Ayush

      Hi Amit,

      We were not comfortable with few things. After holding the stock for few months we felt its better to be safe than sorry and hence exited.

      Regards,

      • Amit

        Thanks Ayush. Can you please elaborate big concern points. I am holding it so would appreciate any major concerns.

        • Ayush

          As a general rule, we have been very cautious of companies with low or no taxation. In past there have been several mid cap cos which took investors for a ride by inflating nos as they were not required to pay tax on reported earnings.

          Plus despite low capex requirements, the co had been paying lower dividends.

          So overall, we felt its better to be safe than sorry.

          Stock has done very well and there have been good ground work and discussions on valuepickr.com

      • Augustine Jos

        Hello Ayush, appreciate if you could explain why u are cautious of Kaveri, please?

        • Ayush

          As a general rule, we have been very cautious of companies with low or no taxation. In past there have been several mid cap cos which took investors for a ride by inflating nos as they were not required to pay tax on reported earnings.

          Plus despite low capex requirements, the co had been paying lower dividends.

          So overall, we felt its better to be safe than sorry.

          Stock has done very well and there have been good ground work and discussions on valuepickr.com. You may like to check that out.

  • Pingback: A contingent stock | Intelligent investing()

  • praveen

    Hi Ayush,
    Am holding Suzlon on 20`s . can you please advise. what shalli do and is there any chance that it can cross this level.
    Regards,
    Praveen

    • Ayush

      Sorry, we don’t track the same and hence can’t comment. But would advice caution as the co is under lot of stress and has been reporting poor nos.

    • Nasirul Amin

      Suzlon is a very capital intensive company. Remember Tulsi Tanti bought RE Power & Hansen because they wanted global footprint and finally sold hansen to deleverage balance sheet. Do you want such promoters who will ride on your money?? I will better be safe than sorry.

  • Ramesh

    Hi Ayush,
    A very happy holi to you and your family!

    How do you see the future prospects of Waste Management Sector? Do you like any particular company which is a screaming value buy?

    Regards,
    Ramesh

    • Ayush

      Hi Ramesh,

      Thanks and hope you had a fun filled Holi!

      We like GRP for long term though its strictly not related to waste management sector.

      Regards,
      Ayush

      • Ramesh

        What is your view on Cerebra Integrated tech? If you haven’t already looked at it, please have a look when you get time.

        • Ayush

          Sorry, not tracking and don’t know much it hence can’t comment.

  • Sandy

    Hi,
    When can we expect update to performance sheet? Its more than a month now???:

    • Ayush

      Hi Sandy,

      Sorry we have been busy with other market related things. Will try to update it soon.

      • Nasirul Amin

        You can take me as an Assistant. I will do the work & learn at the same time. You know learning for life.

        • Ayush

          Thanks for your nice comments. Have replied over email.

  • saurabh

    Ayush and Dalal-Street team, could you let us know what are the current stock you hold.

    • Nasirul Amin

      Check the performance status tab and you will get a rough idea.

  • Amit Goyal

    Hi Ayush, what are your views on Dynemic Products? They have increased their profits this year 9 months and they have also acquired some land for further expansion. Does it look interesting?
    Thanks.

    • Ayush

      We had discussed Dynemic earlier and like it for the undervaluation part. Co has done quite well in recent quarterly results…if the same gets sustained, the stock should do well.

      • Vinod

        Hi Ayush,

        What is the reason behind the good performance of Dynemic in the last few quarters ? Higher demand for its products, rupee depreciation, or…

        How good is the chance that it will sustain/improve going forward ?
        How credible/efficient is Dynemic management ? Have you had any interaction with them ?

        Thanks,
        Vinod

        • Ayush

          Hi Vinod,

          As the co is small, one doesn’t have detailed insights and answers. We feel that the performance has been good due to the growth and operational leverage + better times and margins in the industry.

          Last year the margins were quite depressed due to the pollution issues and the co had to do a lot of investment for solving the same.

          Our interest is more from the deep undervaluation perspective rather than a very long term play.

          No, we haven’t had management interaction.

          • Vinod

            Thanks Ayush

  • Swasti Ranjan Chakraborty

    Dear Sir

    I recently bought Mayur Uniquoters @ Rs 330 per share,seeing the fundamentals of the company and its unique business,and its shareholder friendly history,or views can it prove superb returns,ur views

    • Ayush

      Hi Swati,

      Though its a very good co but the valuations are already rich with the stock trading at already 25 PE. So please take that into ac while investing.

  • Hi Ayush,

    I am constantly using your stock screener and its great but i really need more info as plain info isn’t helping out much and i have to couple it with moneycontrol which is a tedious job. So if you add these then it would help a lot.

    1) Industry – This could really make screener lot more meaningful as it is baseless to compare apples with oranges.

    2) Price Lows and Highs for 3 Years, 5 Years, 10 Years

    3) All profits etc. ratios for atleast last 5 years.

    Alternatively, i would be very interested in purchasing data from your company in form of database as i myself am a programmer and can create a really useful research software. Curious to know if you have any API or interested in getting developed one ?

    Thanks for your time and support

    • Hello Uma Shankar,

      1. You can filter all the stocks in particular industry by typing the industry name in the search box at the top and selecting “Full search” option. It will show all the stocks in particular industry.

      2. Price details for multiple years is not provided due to the complexity involved in adjusting the historical data for corporate actions such as splits and bonus. Exchange provides the adjusted high / lows only for a period of 1 year.

      3. Most of the useful profit ratios are available for the last 10 years including profit growth and average profit ratios.

      Currently we don’t have any APIs. You might like to check out with few data providers including CapitaLine and Accord Fintech. I have heard that they provide an exhaustive software for custom APIs.

      Hope that helps,
      Pratyush

      • Shaji George

        Dear Pratyush,

        Good morning..May be one unrelated question. In the web ,I am able to edit and update data in my profile. But how to download some values in excel download. I would like to have Graham number, Piotroski score etc in my downloaded sheet. can you please guide me ,how to do it? Thanks

        Shaji George

        • Hi Shaji, the excel sheet is for bootstrapping purpose to provide more flexibility to user for creating their own ratios and models.

          In Excel sheet, you will need to add these formulas yourself. Once added, you can upload the excel sheet back and it will be automatically available in future downloads.

          Hope that helps. In future we will try to integrate quick ratios with excel sheet too.

          Pratyush

  • Sahil

    Hi Ayush,

    I am following PC jewellers and company has a strong balance sheet with a low P/E and high Book value.Need your view on the same

    • Ayush

      Hi Sahil,

      Personally we don’t like Jewellery cos and are not tracking this one.

      • Sahil

        Ayush, i request you to have a look on its annual report if you got sometime and let me know if you find anything wrong as this is my first investment. (Not a problem if you are busy)

  • priya

    Dear Ayush,
    Please say the stock about SALONACOTSPIN and FALCON TYRES.
    can I hold it for long term… Is it have any good future by your view ????
    Pl rply