The uncertainity in this stock in my mind is two fold
1). The uncertainity around the dispute over the Rs 160 cr. This one is easy to quantify. If one were to assume that the company will lose the entire amount and incur an extra Rs 5 crs as litigation expenses, then this total of Rs 165 crores translates into Rs 19.5 per share. If we were to start with the base price of Rs 175, when this news broke out, then the lower limit comes to Rs 55. What is the probability that the market will discount the entire Rs 19.5 per share on an already beaten down stock? I think that the odds of that happening are very small. Can the stock drift down towards the middle of that range? Yes it can and we will need to wait and watch.
2). The bigger uncertainity in my mind is the way in which management will deploy the remaining cash to create share holder value in the medium term(18 months). This is more difficult to ascertain and again it is a wait and watch. However, given the good management and the overall opportunity for a well run , low debt, cash rich pharma company in India, the odds for a favourable outcome are on the investors side.
Given the above, i would be willing to bet my money that the stock will move up in the next 12-18 months. Am i willing to bet my house on it? Absolutely not. JB Chem is a mediocre company and will continue to do so unless something unexpected happens. One should wait for the value to unlock and then exit with a tody gain.
I also got out of JB Chem today. Iāve had unpleasant experiences with other stocks where I stubbornly held on and then watched the value reduce by 40%-50% before finally selling out. So you might say that I bought peace of mind by getting out today.
Iāll wait for this to settle down and then take a call depending on the circumstances at that time.
HG , Yes i agree that I even face this tricky situations sometimes, whether to sell out with minimal losses or stick with stock but watching it going down by 50% or so.
It is really a tricky mantra as to know when to cut the losses when some bad news hits the company.Some bad news may look a temporary dent but sometimes it really hits the valuation of stock over medium term.
Basically some seniorās like Hitesh can point out as how to evaluate the risk of some bad news over valuation of stocks in 6-12 months or soā¦
Awesome step HG saab. Being stuck in a company in the hope of recovering your loss is not an excellent idea as per me. One should have courage to book loss, when things doesnāt go as you wish (may be bad news, bad eps, increased debt, corporate governance issue, market apathy, business environment change, or arbit price fall), it is better to book loss and invest in better looking stocks.
But if you have solid conviction, based on your solid analysis and reasoning, than averaging on every fall makes sense.
Any idea in what is the quantum of contract manufacturing business done by JB chem for J&J.
If it is a serious issue then there can be a dent on the companies revenues as J&J might not give contracts to them. That would put a real spanner in all calculations .
Regards,
Saurabh
PS- holding from 75 levels and awaiting more details from company
I tried to contact their US office(H.Q) and Switzerland office but so far did not get any response. I emailed Indian investor contacts as well but did not get anything back.
I spoke with one Dow Jones news editor who covered the story when it happened last year about the J&J buy of JB Chemicals unit.
He told me it is very small amount as far as US is concern and nobody bothers for such a small amount. I tried to find any case registered at any US court but did not get any thing.Honestly I wanted to take some small position and this news came so i kind of now waiting till more clarity come.
If I find anything from here then i will update the forum.
Same here. I have written to management couple of times now, but stoic silence from them. I had asked them if they could share the nature of claims made by J&J but no response.
Although I think management is clean but not disclosing to shareholder makes me a hit queasy.
This is on the lines of Shit Happens!, so when you are trying to follow pure play value investing themes like net-net, diversification is extremely important.
Ergo, Graham is God, because he exactly said that in Security Analysis
I think, JB has posted decent results hence market has reacted positively. There is mention in their press release about H2 will be challenging considering their sale of Russia-CIS business. This specific mention may be a pointer towards impact of J&J notice on its contract on supplying non-prescription products to J &J. If this is the case, I would have preferred managementbreaking that newsupfront in so many words instead of making oblique remarks. However, this is just my āfeelā and may not be the case actually.
JB Chemicalsā domestic sales has increased 29.7% in October, much higher than Unichem ( 12.5%) and Alembic ( 12.5%). Is it just a blip or a trend setter? In case this is a trend setter,would not JB be an outright outperformer? Let me know your thoughts pls.
Disc: Invested in J B chemicals. Looking to add more.
If one looks at the chronology of events in jb chem, the stock was in a tight range of around 70-76 till the news of the johnson problem came up regarding the escrow money.
Weaker hands panicked and sold off taking stock to below the range of 70 up to around 66-67 though not down by much.
The relatively savvy guys held on and got out during the bounce back to around 75. Most of the bulls in the counter were out of the stock during this bounce and then the stock took off.
It seems to have climbed the wall of worry between 70-75 now and seems to be in extremely strong hands and will be in all likelihood bought on dips.