I am invested in JB Chemicals. I liked the conservative approach of the management and now it seems after the capex and new MR recruitment (currently over 2000 from around 800 a couple of years back) the company was showing decent growth in domestic markets.
And then the Rantac episode occured which spoiled the picture for the company atleast for the shorter term duration. As per some Whatsapp forwards, Rantac contributed 10% to sales and 18% to profitability. ( I dont know how true that is as is most Whatsapp gyaan).
The company had come out with an announcement citing that their rantac contained NDMA within permissible limits and apparently it continues to sell rantac. Glaxo which was the market leader with Zinetac has withdrawn from the markets.
In a recent development I saw a USFDA study article (again on Whatsapp forward so I dont know how reliable it is) where apparently USFDA has reported that some brands contain the impurity within permissible limits and so may be allowed to continue to sell. There are even reports of Australian authorities giving the green signal to the molecule after this episode. But one needs to verify all these news first hand rather than relying on Whatsapp forwarded messages and reports.
The announcement by JB Chem on bse clearly states its stand on the molecule.
Coming to the technical picture, after a brief breach of 200 dema at around 350-52 (where the stock price went down to 328-330 for a few trading sessions) the stock price since past 2 trading sessions has bounced above 200 dema. We need to see how it behaves in next few trading sessions to take a call. Results due on 12 Nov should be the key.
Coming to the ramifications of Rantac, I think part of the damage due to reduction in sales of rantac would be made up by tax benefits. The company paid nearly 32% tax for FY 19 and with new regime, it might reduce to 25% providing some relief against any possible damage due to rantac. Besides this, the big growth driver for the company has been the cardiac division and the Cilacar group. The growth figures reported by the latter need to be seen in the quarterly presentation if they provide it.
On a broad picture, the market cap is close to 3000 crores and cash and equivalents are nearly 600 crores. Adjusted for this cash, the valuations look attractive especially if company continues to show good growth. Plus there are always rumours/possibilities of stake sale off an on. I inquired it of a person closely tracking the company and according to him the possibility of stake sale does exist if the price offered is right.
According to an announcement by the company, JB Chem board in its meeting on 12th Nov is going to consider a proposal to buyback shares along with the quarterly results.
Company has a lot of surplus cash on books and can afford to do these buybacks. The quantum of buyback and the buyback price remain the key monitorable.
Dear Hitesh Sir,
What is your opinion on Alkem laboratories? The company has a strong domestic business. It has many brands with a strong recall like Taxim-O . It has entered to new specialities like Urology medicines which it was not catering to before. It is also declaring dividends every quarter. The stock price is consolidating due to pharma sector is out of favor in the market.
Disclosure: Invested and I am a Doctor.
Wanted to know your view on Jagran Prakashan.
Both Jagran and DB have lost a lot of government revenue in recent past. Can we say that even Hindi newspaper terminal decline has started.
Thanks
Alkem is a good company in the pharma space. But as with most companies with higher revenues coming from the highly competitive US markets, it might be facing competitive headwinds. This applies to a lot of other companies like aurobindo, sun, lupin, glenmark and many others. And the stock prices have corrected or not gone anywhere. Only a few exceptions like Torrent or in this particular case Alkem have not been hammered out of shape and probably that might make a case at looking at these closely.
Against that, if you see, most MNC pharma companies and companies with negligible revenues from US like Ipca are hitting new highs continuously. This probably indicates that domestic focussed pharma companies are favoured by markets.
Overall I personally still feel that the pharma space might still be some time away from being market favourites. (barring the kind of MNC and domestic facing companies). The place to be could be good private banks, good chemical companies, and maybe for the purpose of bottom fishing, in spaces like cement and metals. The quality names have run up a lot all during the past 18-20 month correction and I expect them to go sideways or grind up slowly but the real returns going ahead might be made in the sectors favoured by markets.
Hi Hitesh bhai,
What’s your view on PI industries? Can it be bought at current levels for long term ? Considering the high valuation, is there still scope for pe expansion? Can it be considered as a one of a type in chemical space just as Bajaj finance or a HDFC bank are in financials space and hence ok to pay up for the same ? Thanks
do you have a view on GMM Pfaudler? it has been doing very well over the years with key ratios improving. well managed too but doesnt trade cheap in the market. whats your take on it if any ?
PI Inds is a class apart in the agrochem/CSM space. And markets have reposed faith in the company and its management time and again even during brief periods of non performance.
In the market we are in, when everyone knows that a company is good quality, management has proven itself and there are remote chances of skeletons tumbling out of cupboards, the valuations usually tend to go very high.
@basumallick has written about the quality conundrum in his blog intelsense.in He precisely outlines the reasons why quality companies are trading at expensive valuations.
Coming to PI Inds, there will be periods of sideways consolidation or mild correction but after these spells, stock price tends to go up and provide compounding returns.
GMM Pfaudler has been giving consistent results since past many quarters. I was invested in the company but exited some time back between 1450-1500 as I felt that the stock price had run up much ahead of its fundamentals. And inspite of 2 good quarters post that, the stock price still remains in same range.
The problem i had with this company was that it depended on the capex cycle of pharma/agrochem/speciality chemicals. As we all know, speciality chemicals have had a dream run since past many quarters mainly due to the Chinese issues and other factors. Most of them are going in for capex and this lines up orders for GMM and another smaller player Swiss Glass coat. But if and when the capex from these segments saturates, the order flows for gmm and swiss both are likely to slow down. So one has to be on the toes to watch out for signs in moderation of orders.
This is one example where one can learn the importance of valuations. A good company if bought at very expensive valuations with respect to its fundamentals will not provide big returns (atleast for the short term and sometimes longer) even if the results continue to be good. (majorly because that is exactly what markets expect out of it and is baked in the price).
makes a lot of sense, best to track capex plans for their main customers to feel comfortable to continue to hold - i am holding it since past few years but not looking to add unless another wave of orders is visible.
Valuation vs fwd growth seems to be key here as you pointed out.
What is your view on the diagnostic industry players? Which kind of players do you view as having a brighter prospect: B2B focused player like Thyrocare or B2C focused player like Dr. Lal PathLabs?
Thanks as always for your tireless efforts to educate novice investors like us. Also, thanks for mentioning that wonderful article by @basumallick dada.
Thanks so much for the crystal clear reply as always and for sharing link of great article by @basumallick dada
Hitesh bhai, How to make out that price has run ahead of fundamentals ?
Great advice this . Is this expensive valuation part to be kept in mind for cyclical stocks like GMM or for secular growth stocks too ?
Thanks once again for always helping out amateurs like me and making us understand the virtue of quality as well as clearly cautioning us against bad corporate governance stocks
Still keep referring to your earlier replies and it’s a great learning experience.
so I dont know how reliable it is) where apparently USFDA has reported that some brands contain the impurity within permissible limits and so may be allowed to continue to sell. There are even reports of Australian authorities giving the green signal to the molecule after this episode. But one needs to verify all these news first hand rather than relying on Whatsapp forwarded messages and reports.