ValuePickr Forum

Hitesh portfolio

Hi @hitesh2710,

What are your views on Trump’s executive orders on Pharma such as regulating price by allowing imports from other countries and recent news about banning imports of essential drugs - https://www.fiercepharma.com/manufacturing/trump-to-issue-buy-american-executive-order-for-government-agencies-reports

Does this worry you about the sector and how it would affect US dominant players like Granules, Alembic?

@ankit95

We need to see the size of purchase of drugs by govt agencies as compared to the overall size of US pharma market. My guess is it would not be too great. Even while reading a concall of some pharma company based in India (probably strides) I recall about the company mentioning about VA qualification for their Singapore plant and their US facility. So my guess is this is nothing new and being only highlighted now. I think the whole pack consisting of pharma biggies like sun, lupin, drl etc have broken out of their respective 52 week highs and all time highs and we might see strong gains in the sector. Lets see how things go ahead.

@sivareplies I dont track the sector too closely but this development should be positive for the gold loan companies. I think this provision is for limited time period.

@dm88 Surya Roshni evokes very painful memories for me, it being the cause of big losses for me. :grinning: Hence stopped looking at it.

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Dear Hitesh Bhai,
Now a days any stock I pick and its giving me 5-10 % return. “Aisa kabhi nahi hua”. What do you think. Isnt this exuberance ? How it will conclude. Bit scared…

Regards,
Saurabh

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Hi Hitesh Sir, do you see a trend similar to 2017 playing out in the markets currently? There is a lot of euphoria and price elevations, although the underlying businesses may not have recovered from the crisis (some even longer term). Eager to hear your thoughts as you usually spot these broader trends correctly through your market experience.

Thanks!

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Good Evening Hitesh Sir,

Hope you are doing well.

Today the results of Alkem Labs are out.And primafacie suggests they are pretty good. Would you mind looking into the results and provide your analysis on that.

Thanks,
Deb

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Good evening sir,
Can you please say about Gujarat Gas. Posted recently Q1result. Not do encouraging. Can you please give your opinion.
Thanks
Lans

The markets recently have been showing a lot of rallies in the broader markets, with small and midcaps outperforming the large caps and index movers. (Barring reliance)

If we see the rally post Jan 2018 correction, there was no participation from small and midcaps all throughout 2019 and early 2020.

Then came the catharsis of March 2020 when all small cap bulls were washed away and no one was ready to buy them. Everyone wanted safety in quality names, mainly those with brands and moats etc. That has sown the seeds of a strong rally in small and midcaps and those that kept faith in that segment and picked up companies that were likely to deliver good numbers going ahead have been rewarded handsomely.

Some companies I track and own even after the run up do not seem too expensive. Something like alembic could report 65-70 rs eps, and with qip overhang out of the way, seems reasonably valued at 16 PE. Here the concern is sartans over dependence, maybe rightly or wrongly, only time will tell.

Similarly, laurus, if it continues momentum shown in q1, for next few quarters can report good numbers and again at around 15-16 pe and a strong demand scenario seems ok.

Same thing with a lot of other small and midcaps where earnings momentum has returned but price is just about beginning to catch up.

A lot of cyclical stocks were beaten out of shape, and therefore rallied to reach fair values.

So although the markets do seem frothy, with small and midcaps running hard, maybe there might be some steam left.

I am fully invested, but would be on the lookout for too much froth to make any decisions to exit. The only worry I see is last time I saw strong moves in small and midcaps was in 2017 and then 2018 happened, which depressed sentiments in the segments for 2 whole years.

I dont track guj gas too closely. Alkem numbers are very good, but need to listen to concall to guess the way forward.

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@hitesh2710 sir do you track granules also from pharma space. Their Cashflow is negative from 2013 and management is taking high salary. Is this okay or there can be corporate governance issue here

@hitesh2710 as always your words are full of wisdom. You had put out your thoughts to stay out of NBFCs almost 1.5 yrs back which saved lot of fellow members. Would be really-2 helpful if you can warn fellow members if you start seeing froth in the markets based on your technical expertise and rich market experience.

Thanks again for all the guidance and wisdom.

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Good Morning Sir
Hope you are doing well and good.
Went through Fermenta Bio. Producing API for D3.How do you see their business. Numbers look good and going forward there will be high demand for D3.
Thank you
Lans

@amit_dalmia

As I can see from screener, operating cash flow for each of the year from 2013 barring 2018 is positive. Free cash flow may be a different thing. But for a company which has increased its fixed assets from 263 crores to more than 1200 crores in FY 20 and improved its sales from 761 to 2739 crores in same time period, and improved its operating profits from 86 crores to 520 crores, one needs to look at the bigger picture.

I too was under the impression that something was not well with the company but whenever I listened to the concall, and followed up by looking at subsequent numbers, I could make out that management indeed did deliver on what they promised. Even now I cannot say with certaintly that I am absolutely confident about the company.

Regarding promoter compensation it would be better if you can come out with numbers and quantify what you are saying and we can take it from there. I have not gone into too much details regarding that.

There are times when the integrity, balance sheet issues, free cash flows, pledging etc are very important aspects in the markets and there are other phases where earnings is of foremost importance especially when the sector is one of the market darlings. One has to figure out where we are in the market cycle and some times modify our filters. The current theme is earnings, earnings and earnings.

@Aluwalia I do not track fermenta too closely. But the company is giving out detailed presentation about their business, if one wants to dig deeper.

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Dear Hiteshji,
I request your valuable comments on the following portfolio selection criteria.

Beginning this quarter(Q1FY21) I have centered my investments and trades around the companies which have posted growth in revenue and net profit in excess of 20% in the latest quarter YoY and in excess of 10% QoQ, in combination with others filters. The filter looks like this-

YOY Quarterly profit growth > 20% AND

YOY Quarterly sales growth > 20% AND

QoQ Profits >10 AND

QoQ Sales >10 AND

*EPS latest quarter > EPS preceding year quarter 1.20 AND

Market Capitalization >500 AND

Return on capital employed >12 AND

Return on equity >12 AND

Net profit >0 AND

Debt to equity <1

As per screener.in the following companies meet the above criteria as on date(i.e. 08.08.2020) [only those companies which have declared the latest quarter results have been selected as per the filter]:

The above selection is to be reviewed every quarter once the results for the quarter under review are out. If any of the portfolio companies fall(s) out of the above criteria post results, it will be sold at one go without any second thought. No fundamental or technical research is warranted. I have not back-tested this strategy so far, but stock prices of the above companies seem to be on a crazy runway since declaration of quarterly results!

What could be possible pitfalls of such a formula based portfolio selection criterian which is done without digging into the business, promoters, corporate governance, etc? Does your experience show anything which could turn out to be a disaster?

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Hi Hitesh Sir, Good after noon

What is you medium term view on sugar sector. companies like Dalmia Bharat or EID parry. Not asking for long term view as this is a cyclical sector :slight_smile:

Hello Hitesh Sir,
What are your views on Oncology players like Shilpa Medicure and Natco Pharma?

Shilpa Medicure mainly a Oncology player ,also into Dermatology and CRAMS.
Few recent developments -Initiated a Biologics manufacturing plant Karnataka, Phase I of the facility on schedule to commission in June 2020.
centralized R&D centre at Bengaluru for the development of Formulation, to be fully commissioned by September 2020.
OPM %-near to 20% for past few years

Natco Pharma Oncology player now into complex high margin generics, focusing in Canadian and Brazilian markets and recent forey in crop sciences.
OPM %-near to 38% in the year 2019

Many thanks

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@hitesh2710 Hitesh bhai what is causing API manufacturers like Shilpa, Aarti, Laurus, etc. to report such good numbers? Some factor related to Chinese disruption I suppose?

How sustainable is this over the long run?

What would be the signs of froth in this sector?

Worried because everybody is talking about pharma today unlike a few weeks back.

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@hitesh2710 sir also if one sees the debtor days of laurus compared to peers like Alembic, it seems much higher. Do u feel this a concern?

@hitesh2710 sir have you been tracking PSP Projects? The company has been showing solid growth (with exception of Q1) with good return and financial metrics. The company has reported labour situation normalising and back at 75-80% capacity. There is a strong order book (~3k crores) with good revenue visibility for 1-1.5 years and a good bidding pipeline.

The company focusses on industrial and institutional projects on private side with less than 30-35% order book from the govt side. Private side projects comes with mobilization advances which helps the company do multiple projects concurrently without stretching their working capital.

There are additional triggers lined up with the company increasing it’s pre-qualification credentials from projects worth 500 crores to 1500 crores upon completion of SDB project in March-April 2021, allowing them to bid for more complex and higher value projects going forward. Also, there is an upcoming capex of 75 crores for a pre-fabrication plant slated to go operational in 2021 which helps the company make pre fabricated components for projects in Gujarat which could significantly reduce their project timelines and reduce dependence on labour as well.

Could you please share your thoughts if you’re tracking this company? Or just general understanding of why we’ve seen very little wealth creation in EPC companies with not many instances of those who’ve crossed the chasm from 1-3k crore marketcap to the 20-25k crore marketcap? What about the industry makes it difficult for even relatively established small companies to grow in size comparable to a L&T, Shapoorji Pallonji?

@ValueInvstr

I am not much of a quant guy and your write up seems to indicate some sort of quant formula. So, better follow up with appropriate guys.

@mukesh

Fundamentally, i don’t follow sugar sector but charts of most of them are interesting.

@ashkrithik, i don’t track psp projects.

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@hitesh2710 can you please comment on these points whenever you get a chance? I am posting them again in case you missed them above.

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@barathmukhi

I think the exact reason for stellar numbers from most API players is difficult to understand. But one theory that makes sense is that of outsourcing and procurement from Indian API players at the cost of Chinese firms. The Indian api guys have over the years proven to be more trustworthy.

The recent fiasco in sartans, where NDMA impurity was found above permissible limits traces its roots in API sourcing from Hubei, which is one of the biggest global api players. In conversation with a pharma expert, I was told that hubei changed the whole process of manufacturing the sartans api without informing their clients. This kind of processes and mistakes can lead to loss of credibility in the markets.

Plus the disruptions in supply chains caused by abrupt clampdown on chemical industries in China under the guise of environmental reasons also has hampered the regular supplies of api and dented the reputation of Chinese companies as reliable partners in business.

Added to that is the anger due to Covid, which has affected the whole world because of alleged lapses by the Chinese.

How long the party lasts is anybody’s guess but since it seems to have begun since only a quarter or two, there seems to be more music left.

Froth will be visible in valuations and narratives. Once markets start acknowledging the invincibility of the sector (remember hdfc bk, bajaj fin etc) , one should start getting on the lookout for signs of exhaustion.

@ram1984 Once a sector becomes market darling, most concerns are brushed aside, and its almost like a juggernaut going ahead. No use being a purist and trying to find flaws. Even ligically, companies predominantly into exports will have high debtors. So that’s nothing new. Comparing one company with another with different business models doesn’t make sense. Better look at same company over the years and see if things are deteriorating with increased sales.

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