Hi Investor, these are nicely put questions and we wait for Hitesh to respond. However since you mentioned you have limited understanding of pharma I thought this video might help you Pharma sector overview by PPFAS
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Interesting questions. 
Looks like I am giving exams on pharma investing.
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US govt healthcare bill especially post Obamacare had spiralled up. And as it is, medicines are inherently expensive in the US. So in an effort to reduce the burden of high medicine expenses on govt and citizens alike, generics was the answer. Patents given to innovators have a time period post which other companies having US FDA approved facilities and molecules are allowed to launch. The pricing of these generics is a sort of open market policy and usually depends upon demand supply mismatch. If there are a lot of players launching specific generic molecule, price erosion can be severe sometimes to the tune of 99% or more. Where competition is low due to one or the other reason, erosion might be lower. I dont think the innovators benefit from generic launches. In fact they fight tooth and nail to delay the generic launches to protect their turf.
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Approval of Indian generics was always a continuous process in the US over the years but the trend that has emerged of late has been quicker approval times, partly due to the internal requirements of the US markets. There are a lot of global generics players vying for a pie in the US generics space including some US players as well. Approvals given for facilities and drugs are not country specific. It is company specific.
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Regarding the question 3, I think thinking in terms of country specificity is the wrong way to go about it. My guess is that earlier there might have been some laxity in manufacturing practices from Indian companies which might not have met approval of usfda. Plus usfda might have raised its standards. And in response to these measures, Indian pharma companies have already raised their standards in manufacturing and data integrity vital for getting usfda approvals. These kind of learnings usually take time and money.
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Any disruption in business model usually causes initial knee jerk reactions and once things settle down, a new norm is established after a lot of trial and errors and learnings and vicarious learnings. Recent approvals could be because of results of learnings Indian companies gained.
I could not get the exact gist of most questions and hence answered as above.
Another aspect I would like to mention is that I get a lot of private messages regarding queries and henceforth would not be replying in a private mode. We can take discussion forward on valuepickr because we want more fruitful participation on VP for the benefit of everyone. Plus sharing on the forum provides us views of other boarders who have better competence in answering the queries.
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Dear Hitesh, Thank you for detailed answers. I apologize if you feel awkward, I just dotted down points I had in mind as it is only you who could have given us light here 
…these are some of questions I asked myself 10 years back when I wanted to go big on Pharma because of seeing it as a similar to IT outsourcing story in nascent stages. I could not get satisfactory answers and also could not identify which 1 or 2 stocks to choose, I ended up skipping the sector, which initially looked regretful as the likes of Lupin, Sun etc flew high but when FDA issues started coming, I felt it was good for an investor of my type (who helds on stock and buys on dips, until severe fundamental damage - In Pharma case I could not have identified the damage until I had bought excess on dips).
I can clearly see yet again that tide is in favour of pharma again, but even after getting more answers, I am ending up not with solution but with more questions.
I am unable to accept Pharma as a fundamentally structural play because of numerous complexities - like FDA for exports, US presidential elections (dependency on US policies), Indian Gov regulations, Price controls and new things propping up in last 10 years which I have seen since actively tracing stocks.
Having said above, I agree to all that it can be excellent tactical play. Before investing, I wanted to understand if indeed it is a great structural story ahead or not.
I will really read your answers again and also do more self reading. Thanks once again for your time and sharing your knowledge with us 
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Hi Hitesh sir, could you please provide your technical view on PNB housing.valuation is looking attractive at 0.37 book value. Would you see more downside? Thanks
Hiteshji, could you pls provide your view on sequent scientific?
If you remember i had brought it to your attention a couple of years back. Now Carlyle has bought over the promoter stake at Rs 86 and will trigger an open offer. The promoter pledge is going to be completely removed. Given Carlyles expertise as Private equity investor to create, build value and exit i am continuing to hold on for the long term as i feel best years are coming up.
Sir Any view on Varroc engineering? Its last 12 months operating profit is more than 1000cr while its MCAP is 1800 cr only…Its balance sheet is not strong due to capex…Can it be Value buy…
@hitesh2710
SIR just for your attention in guardian newspaper UK…
The US will announce on Tuesday that it has signed one of its largest ever contracts to boost pharmaceutical manufacturing in the country.
The $354m, four-year contract with a company in Virginia is to make generic medicines and pharmaceutical ingredients needed to treat Covid-19 that are currently largely imported from abroad, the New York Times has reported.
The contract was awarded to Phlow Corp, a generic drugmaker that makes medicines overseas, mostly in India and China , according to the NYT.
Trump’s trade adviser, Peter Navarro , called this “a historic turning point in America’s efforts to onshore its pharmaceutical production and supply chains”.
The US health secretary, Alex Azar , called the initiative “a significant step to rebuild our domestic ability to protect ourselves from health threats”, in a statement the administration plans to make public on Tuesday morning, according to the NYT.
The NYT added that the contract may be extended for a total of $812m over 10 years, making it one of the largest awards in the authority’s history
Full details are in this link
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sir this can start new trend of moving manufacturing to USA from india and china , will have to see future development
I dont know what is there to get so worked up by this 354 million usd contract. Just to bring some context to the matter, albuterol which cipla has got approval for has an opportunity size of more than 1 billion usd.
And as far as my understanding goes, this contract is to stockpile the API for covid drugs. And as of now most of the drugs given for the purpose are only empirical and there has till date not been any sure shot drug that kills all viruses in all patients. Reports on remedesvir are conflicting. Gilead produced it and it seems dr Fauci, the advisor to Trump has a big stake in it. So we need to read in between the lines.
When no one has any idea about a definite treatment for a disease, a lot of hypothesis based treatments come to the fore, each claiming to be better than the other.
Yesterday I read news about doctors in Bangladesh claiming to have found a cure using doxycycline and ivermectin, both commonly used drugs by dermatologist fraternity. But I would take it with a huge pinch of salt.
In this day of information overload, one needs to know what to ignore and what not or else stay away from too much news. Not everything written or mentioned on tv/newspapers is true.
Aristotle is said to have quoted, "a single swallow does not a summer make. " One cannot make judgement calls based on single piece of news/evidence and that too which is doubtful.
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Sequent remains in an attractive business segment of veterinary API. Numbers for the company seem to be improving. But valuationwise last I had a look at it, around 70-72 Rs, it appeared expensive in the context of current market and the size of the company.
Carlyle has gotten into the company and that is probably better than the earlier owner. But entry of a big PE player is not necessarily a sure shot way to success. They also make judgemental errors. case in point being blackrock’s buying of gokaldas exports at very high valautions and sell out at huge loss. Even the guy who bought that stake namely Matthew Cyriac is having a tough time running the business. Since you are good at charts, its better to go by them.
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@CHIRAG_BARASARA Varroc caters to the two wheelers segment as an auto ancillary. Its fortunes will be linked to those of the two wheeler industry. The whole auto industry is in the dumps since many quarters now and its anybody’s guess when it will turn around.
I had heard about its recommendation at around 400-450 as a cyclical bet and now I see its price at around 130 or so. It will have to go up 3 times to meet the buying price of someone who had bought it at 400. Thats how brutal cuts in cyclicals can be.
Investing in cyclicals needs a braveheart mindset. It is for people who track the industry very very closely or for someone who is exceptionally good at technicals.
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PNB Housing has been looking weak ever since it broke down below a major bottom of 800. Since then it has been consistently posting lower bottoms and lower tops with hardly any show of strength. Its better to wait till it shows any signs of reversal on the charts or if being tracked fundamentally, any signs of business improving. And there too not rely too much on what management says because long back when I was invested in it, I always heard only bullish commentary from the management.
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Hi Hitesh
Would like to know your views in context of recent news on delisting of United Spirits. Do you think this risk of delisting is present in most MNCs where promoter hold significant stakes and most of them never want to share the value with Indian investors? In this context, how should we see firms like - United Breweries, HUL, Nestle, P&G, 3M etc with all foreign owned managements and high promoter stake?
Also, is it advisable in case of good profitable MNCs to not sell our shares in delisting and keep them in hope of any future relisting or selling them off exchanges via some websites I saw who trade on delisted shares. Is it safe, legal and genuine and can we expect good appreciation if the company performs well in future? Is it worth the risk and hassle?
Thanks!
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Thankyou Hiteshji
I still have a very strong conviction and sequent remains my largest holding. Valuation wise it should trade 100-110 range. Sequent promoters sold at a distress due to liquidity constraints. Also the animal health market is quite huge worldwide and Carlyle has the experience to scale up and sell. I suppose not easy for retail to buy a 30 PE stock. Thanks for bringing to my attention the Gokaldas deal!
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Hi Hitesh Ji,
Good day,
Can you provide some insight on wood coating industry / Sirca paints. I know there is a separate thread in VP but just would like to take yr thoughts. How industry is shaping up for wood coating, industry market size etc.
Thanks
Sir what is your view on Bharat dynamics, Hindustan aeronautics BEL and mishr dhatu after the recent package from the government.
Thank you sir
Hi Hitesh bhai,
Whats your view on Aarti Inds and SRF ? Which are good high growth companies in specialty chemicals ? Many thanks
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Dr Hitesh , Greetings and thanks for helping each one of us in shaping our investment philosophy .Sir could you please spare some time and share you basic five must asked question that must be answered before taking deep dive to analysis of any sector and than five questions of company specific .
Could you share your views Essel poly pack as the old pack of management has gone and is catering to 1/3 of worlds oral care laminated tubes.
Regards
Yourraj
For sector, the my top questions would be (there would be many more but I am listing 5)
Is it a cyclical sector?
What is the profit pool?
What kind of opportunity size does the sector have?
Are there sectoral tailwinds or headwinds?
Are there too many variables in the business.? Are there too many factors affecting the business beyond the control of the company?
Company specific company.
1.What kind of company is it? high growth, compounder, turnaround, cyclical, asset play etc. (Lynch classification)
2. Do I understand the business and business levers and all things related to the business of the company?
3. What is the opportunity size of the company with respect to the market cap?EV of the company. If the opp size is big, can the company scale?
4. What is management quality, business quality (margins, return ratios) , balance sheet strength (includes debt, working capital etc) , growth rate of the company and future prospects?
5. How much wealth has the company/promoter group created for investors in the past? How good is the capital allocation skill of the company. How much holding of promoters? Pledging? Navigation during difficult times?
Regarding Essel propack, as a business its a good business with market dominating position but a B2B player. Indirect way to play the fmcg theme. With exit of zee group, some amount of concerns regarding promoter/management quality have receded. Valuations wise I dont track it.
@A_shah I dont track aarti inds, srf.
@docharry80 I dont track any of the PSUs mentioned. Mishra Dhatu Nigam seems to be a good monopolilstic company but haven’t tracked it for a while.
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My answer is not likely to have the depth we see on Hitesh’s nor I have the experience that he has but if I may answer, based on what I know I think it’s the nature of companies to go for expansions when things are good and demand is high. (Bull phase) If one company goes for expansion usually others do the same so as not to be left out. Like we saw in thirumalai and its competitor IG pet, also balaji amines and alkali amines. Prices then fall to marginal cost and sometimes they have to sell below cost. Everybody loses. The stocks go down until either excess capacity is used up by growth or some of them close. This brings the bear phase.
Regarding your query both companies are expanding.
Srf:
Srf is expanding their fluorocarbons, navin flourine is also expanding or just finished into somewhat similar product
Aircon demand is getting higher so possibly both navin and srf will find customers to sell the new capacity to.
How about aarti,
They are also expanding however their expansion is because of a contract where most of their new production is already contracted out.
I also look at cash flow, roe, balance sheet irregularities.
Both companies are run by honest management however I feel Aarti has a better chance of higher utilisation and thus higher revenue.
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