Dr. Datson - Can it be the next Marksans pharma

Stock Opportunities Untested - but worth a good look
1

Hi,

Initiating this thread with a brief compilation of some facts.

The problem.

1). Company is suffering from acute working capital problems.

2). Huge equity dilution due to FCCB conversion.

3). Corporate Governance issues. The shares of promoters were pledged and as a result of invocation by lenders promoter stake is now 0. Hence the company is without any promoters as of today.

4). Huge drop in profitability due to all its issues.

The silver lining:

1). New management has taken over this year

2). Dr. Datson has recieved an order from Delhi based pharma Ochoa Laboratoris to produce oncology drugs to cater to Europeran markets worth Rs. 120.

3). There are three potential acquirers for Dr. Datson

a. Eubage which has given an enterprise valuation of Rs. 350 crores or Rs. 35 per share for Dr. Datson

b. Hong Kong based Leaders Group Asia

c. Unconfirmed reports of another big acquirer Advanced Oncotherapy PLC which is based in London UK.

4). They are in final stage of talks with a Nigerian company for exports.

5). Yemen based company Al Muugh has signed an agreement for exports to Yemen

The price had gone down from highs of Rs. 850 to Rs. 5.5 due to falling profitability, huge equity dilution, lenders selling of pledged shares, corporate misgovernance, and working capital squeeze.

However the steady flow of good news and expectations of an acquisition has set the stock on fire for the last one week with huge volumes and a series of upper circuits.

Can it be the next marksans pharma. If so it could be a minimum 10 bagger even from the current levels

2

Fair Value of Company Equity =EnterpriseValue â Debt

Is 350 cr. the fair value of company equity?

3

Enterprise value doesn’t mean that shareholders get money incase of sold out.How could we confirmed that order or real? Just don’t get into all this trouble.

4

Sridhar,

I have therefore posted this scrip in the Contrarian takes.

This is a typical turnaround scrip. High risk high return.

The firm has bagged orders or roughly Rs. 400 crores in the last 3 months since the new management has taken over.

1). Eubage

2). Clinton foundation

3). A yemenese group

4). Ochra labs.

The old promoters are now out of the game and a professional management appointed by Institutions is now in charge.

It may really be a surprise package. Do not throw it off without giving it proper attention.

5

hi Hrishikesh,

who is this new mgmt , what is the track record.

the news about acquisition is simply based on the announcements made on the exchange and may not happen. it seems that the company has mentioned about acquisition in the past which also didn’t go through.

EV of 350 cr. the debt on the company is more than 350 cr.

another thing i fail to understand if the company is worth so much why didn’t the owner just sold it off earlier at a profit rather than waiting for invocation of pledged shares and incurring huge losses as the shares must have been sold at a low price.

regarding the orders received. it appears a positive for the company but that alone will not suffice, since there were serious governance issues , we cannot rely solely on these news unless they translate into cash / reduction of debt/ incr in revenue etc.

As per Sept BS , the company hardly has any inventory - 10 lacs and a cash of abt 1 cr only. There are no remarks in the note section about write offs etc.

need to check mar results

6

[ Comment too short ]

7

Hi Manish,

You are absolutely right. If you see the last 3 quarters all the sales are through trading activities. That explains the low inventory levels. Here are some points.

1). The two plants (in pune and mahad) were completely shut down due to a huge cash crunch.

2). The pune plant is now expected to start running this month and Mahad by June end as they are awaiting environmental clearances.

3). The new management has indicated four focus areas.

a. Clearing all pending contract negotiations.

b. Bringing in a new promoter

c. Negoiating with banks for debt restructuring and new working capital financing.

d. Getting back investor confidence.

3). Ochra is expecting output from september this year as they need to start selling the oncology drugs in the sept - december quarter.

4). The debt would be reduced by approx 60 crores (will confirm") due to FCCB conversion at around Rs. 15.

5). The new management is p[ut in place by institutions (who would obviously want to recover their investments) and is completely professional.

6). The old promoters are out of the picture now.

7). So hoping that July onwards both plants will be running full steam (pune plant is expected to run in 2 or 3 shifts).

)

8

not my cup of tea

9

thanks Hrishikesh for the info,

i will wait for the debt to come down.

10

Shareholding pattern for 31st match 2015 was declared today. FII holding has come down a lot. Without promoter and without a decent investor group this company is definitely on the operating table. It’s been a month since 31 march though and lot of water has flown under the bridge. Today itself, a block deal of 13.5 cr has happened. Will have to wait more for something good to happen here

.