Dear Sir,
sorry for my reply… I just want to understand your views …
PEL has invested hugely in Realty sector, and this sector is struggling. Also, indiareit fund delayed the payment to investor. Also, they invested in Shriram, which is has high NPA and not performing well compare to other NBFC.
Are not these -ve for PEL.
neeraj,
You can go through the company presentation available on their website and try to get answers to your fears and queries.
Hiteshbhai,
If you look at banking and nbfc space hdfc bank, indusind bank, yes bank, cholamandal, bajaj finance, can fin homes, sks microfinance , all are at all time highs…
Do you see an early sign of leadership which will continue for next 3-5 years from the banking/nbfc space??
hi
Some of the financials are at or near all time highs but I wont take that as a sectoral leadership sign. Most of these stocks have been posting great numbers since a long time and therefore deserve to be where they are.
I am of the camp that believes that rather than look for the next big sector or theme its better to go individually with various companies and find out the winners there. If a clear sector does emerge which could provide outsized returns then one can definitely jump in and ride whatever is possible.
@hitesh2710 bhai, Granules India posted great Q4 result. 48% increase in net profit YoY and SUPER EBITDA margins even though less improvement in sales owing to change in strategy - more focus on finished dosages than APIs. Company targeting 10-15% + topline growth and 20+% bottomline growth for 2017. Can you please share your viewpoint on this?
Hitesh - In the pharma pack we have the results declared for Alembic pharma, Ajanta and Granules. What is your take on the results and how are these companies placed from growth and returns perspective from next 2-3 year horizon perspective ?
vimal,
Granules remains a co with moderate topline growth with improving margins. In its presentation post q4 results this point also has been highlighted where they have shown improvement in ebidta and net margins.
Additional triggers for the co do exist in terms of the Omnichem JV for CRAMS and Auctus for additional ANDA filings. They also have taken a facility in Virginia USA for complex molecules and value addition to existing molecules. Plus they have the potential to milk the approval for OTC in US markets.
Valuation wise its at trailing PE of around 24 based on EPS of 5.7 for fy 16. And company’s market cap is below 3000 crores so if company executes on most fronts it can be a winner.
The usual risks about regulatory problems remain. There was also some pledging by promoters. Debt at around 470 crore needs to be watched.
I invested some time back based on its techno funda picture.
rajesh,
Ajanta results have been on expected lines. With the recent run up I think upside potential can remain capped.
Alembic delivered decent results. US base business and Indian domestic business should be the growth drivers. Today I read somewhere that they got approval for generic Vimpat which should allay concerns about USFDA problems. The management talks of big spend in R&D next year and this could depress earnings for the year. In the longer term this could be a good strategy.
Granules I have mentioned in earlier post.
disc: invested in granules and alembic. No holding in ajanta.
Doc Saab - any opinion about Shilpa?
It has long awaited FDA approvals are in place now what left for Shilpa is to just manufacture and start selling ahead so its a very clear picture so less risky too.
hi manish,
Shilpa for me was a great buy once it got its USFDA nod for API facility. Since then the Japanese approval was a big positive surprise for me. Next event could be approval for formulation facility and/or good growth continuation in results.
It seems to me to be in a sweet spot.
disc: invested.
Hiteshbhai,
Sorry to trouble you once more, this time for Alkem Laboratories.The reason for asking you is this:point_down:
Do you think Alkem fits in this? For Alkem, exports contribute only 25% of revenue (mostly from US) and has planned for increasing the same. The recent observations from Netherlands Health regulator is a hangover. Did you have a chance to look at Alkem? Request your views pls.
And of course, thank you once again for the above (quoted) crisp explanation.
Rgds.
advait,
I dont follow alkem labs closely so dont have any views on it.
@hitesh2710 ji, I just wanted to understand that why some companies like Granules India capitalize R&D costs while other companies like Alembic don’t?
The obvious thing which I understand is that Not capitalizing R&D cost puts pressures on the margins, whereas capitalizing R&D costs adds it to the company’s assets.
My inference was that Granules india is capitalizing R&D costs because the management wants to show itself to the investors as a very cost efficient company through their improved margins. Adding r&d costs to operating expenses would ruin that image. So should we judge such companies based on their Return on assets/asset turnover ratio?
Also, as I went through the alembic concall notes of @pikrohit , I see the mention that capitalizing r&d costs is detrimental for long term investors. I want to understand why is that so?
Hitesh, Do you think bigger banks targeting lending to salaried class people will derail the canfin growth story?. Since the bigger banks ended up with NPAs lending to corporate…do you think their corporate lending processes will be tightened which would force them to target lending to retail salaried folks to utilize their excess cash?
nishant,
We need to first know what is included in R&D expense. And also one has to look at what percentage of sales is spent on it. Alembic spends a high proportion of money in R&D and are talking about taking it to the tune of 12-15%. They do get tax benefits out of it but if this whole amount is capitalised then profits will bloat up. But as a prudent accounting policy they might be showing it in P&L. One has to value Alembic accordingly based on these depressed earnings. The amount spent now or say in near future of next one year is going to bear fruits but will take some time.
In case of Granules they capitalise R&D costs but since the amount as a percentage of sales may not be too big I might not be too worried. Plus the kind of molecules they manufacture are very basic molecules. There the play is on co being lowest cost producer in some products which are the backbone of many common ailments.
If a co does something which it is allowed to do I feel it should be okay.
This is more a question for accountants. I tend to look at broader picture and take my calls. If there is something grossly wrong then I would be worried but these accounting things have to be taken in one’s stride.
harsha,
Banks have been targetting salaried home loans since a long time and still HFCs have grown strongly bcos of their singular focus on a single sector. In near future I dont see too much risk to HFCs.
There are couple of guidelines issued by Companies Act (Accounting Standards) as to when R&D can be capitalised and when it needs to be expensed viz
(so if say USFDA stage filing has been done, it would amount to satsifaction of all criteria of point 2 , and auditor would allow capitalisation of expense). Till then it needs to be expensed off
Great to see 2000th post in Hitesh ji’s portfolio…Congrats…Keep up the good work pl.
