ValuePickr Forum

Hitesh portfolio

Thanks for providing these excellent inputs on Alembic.

I have a question pertaining to making use of technical indicators for appropriate entrance once the fundamental understanding is clear…you have provided a nice description about this usage sometime earlier

As per the data from for Alembic Pharma, 50 DMA curve crossed the 200 DMA curve around November 2019, this indicates a rapid upswing most of the time and in most cases…it has happened over here too with price going from 500 to 1000

Under these circumstances, how does one go about buying?..possibly it may go much higher or can correct rapidly before next upswing which will be based on q2/3 results and performance of domestic portfolio as you mentioned…of course there might be other technical indicators over here, but which i do not understand…essentially does it make sense to consider technical indicators over here?


I try to look at fundamental figures of past few years, and charts of the company in question. This is a first step to screen if the idea is worth pursuing. If these two are not encouraging, next question to ask is what is it that makes the business interesting. And still if I don’t have the answers, I give it a miss. Sometimes while pursuing an idea if I find that its too tough for me to understand the business or the triggers that are involved in investment thesis, I give the idea a miss.

If it passes my filters, I try to read up the annual report, company presentations, concalls etc… Then comes sounding out investor friends who could be interested in the business, or know more about the business. Valuepickr has been a great platform to establish a wide group of friends from whom I can get details/feedback about businesses I am interested. And some times they act as great sounding boards.

If some idea appeals to me then I work hard on it using all resources I have and try to figure out whether its worth investing.

I don’t follow any particular investor. I rely more on the feedback of my trusted friends.

@Patrioticindian I dont follow aarti drugs too closely.
@manoopatil At current juncture, I cannot find anything in the power sector that excites me. And I cannot see as long as 5 to 10 years barring in companies like nestle, bata, asian paints, HUL, and such great companies.

@Kuldeepjadeja I still don’t prefer to look at financials as a sector and hence Mas as a company. I met one of the two top guys Mukesh Gandhi for knowing about the business and promoters and was very impressed with him. But in current environment I would prefer to give most financials a miss. I have written earlier about sectors losing market fancy before, so my views are pretty clear.

@biju_john Its tough to analyse the large cap companies in pharma space with loads of variables. Better to stick to the companies where we have high conviction or else go with a basket approach and buy a bunch of good pharma companies and hope it works.


Hitesh Bhai. Thanks for your post Alembic and Laurus. very insightful. wanted to know, do you have any views on ITC. Lot of things have been written about the Co as you say ad nauseum. The cigarette volumes coming down and may be badly hit as consumer pattern may have changed with Covid. But their FMCG others seems to have been trying hands at different things. Like hygiene products have picked up well. Frozen snacks are doing good. Some products have been successful and some failed. FMCG margins are improving but at a very slow pace. Given the current price and the FCF it generates, do you think it can be a good stock to enter at current price?

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ITC as you know has two main businesses. Cigarette and FMCG. Plus holding in other companies like hotels, paper, e chaupal etc. The real meaningful businesses are cigarette and fmcg. For the rest, its a holding company.

It has always generated huge cash flows over the years. Where the management has stumbled is capital allocation.

Investing money into businesses like hotels, paper, agri etc is a diversification that has not played out. Even FMCG has had enough years to have shown its profitability. But it still has not contributed meaningfully to profits.

Now thankfully management seems to be getting to its senses in terms of capital allocatioin. They have promised to pay out nearly 85% of their profits as dividends. But nowadays dividends attract dual taxation. Company pays DDT and investor pays tax according to his own tax bracket. Someone who falls in 30% tax bracket will have to pay equal amount of taxes. This does not create a very efficient mechanism to transfer money to shareholders. Maybe buyback can be a good option till the govt tinkers with it too.

Markets pay for growth. And if surplus money is invested in other businesses, then the incremental roce on that investment needs to be seen. In case of ITC that aspect is extremely poor.

Cigarette business is now a days not seen as an unhealthy business. Hence a lot of funds following appropriate guidelines are selling itc and I dont see any other big funds coming around and buying in big chunks, unless something drastically changes for the company.

So as of now ITC remains a pure defensive play, may be with limited downside, but with limited upside too. And once you buy ITC and don’t see it move for say 3-6 months while most other stocks run up hard, it is often frustrating to hold on to such crawlers.

Personally I would any day prefer to buy stocks like dr reddy, or alkem, or cipla which have strong tailwinds going for them and have limited downside. And then ride these till the pharma bull run continues after which I may consider my alternatives.


I dont think there is any DDT. Dividend is only taxed in the hand of individual


Sir many of the pharma companies say divis lab,alembic laurus etc have negative 10 years free cash flow.what to be think in this.and in 10years free cash flows are negative in every year and reserves are increasing why it is so.


I think instead of generalising, lets take companies on a specific basis. Please provide the free cash flow numbers for the companies you want to discuss and we can take it from there.


Hitesh Ji coming to the new rules of sebi which will be in force from 1st sept 2020 regarding the margin rules will be effective on cash segment as well .This will reduce the volatility and crunch the trading volume . How this will impact long term investors ?

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The changes relating to margin funding are not going to affect the buy and hold kind of investors
At most, it can reduce portfolio churns in guys doing quick short term trading.

But first we have to see whether it really gets implemented or is postponed. Ultimately, trading volumes shrink which should affect brokerage companies.


Hitesh sir this is alembic pharma cash flow statement here free cash flow is negative the company use capex aggressively or what to be think in this type of scenerio.

Sorry hiteshbhai adding few details on your post.
SEBI has allowed that client can keep margin in other form also other then cash. Instead of keeping cash with broker client can buy any liquid mutual fund scheme eg Jm liquid fund (their are many available)and keep as margin, it will earn interest around 4.5 to 5.5 % . So money is best utilised and margin problem is solved too.
Also new pledge system makes transfer of securities very easy and transparent and client has complete control.

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I hope you have atleast read the annual report of Alembic pharma for FY 20. This is the least an investor contemplating an investment in the company can do. (for any company per se). If that were the case, there are some interesting insights for anyone to see which will explain the issue with FCF generation. I think this might have been covered by someone in the relevant thread, but I would like to put forward my observations.

From FY 15 to FY 20, gross capex amounted to nearly 3000 crores. (2940 crores to be exact.) R&D spends from last 5 years totals nearly 2700 crores.

Above two figures are the basic building blocks for any company to grow in the pharma exports market. What is needed for success in regulated markets?

Approvals for as many molecules as possible. – ANDA for US. You can track the no of ANDA approvals in last 5 years for alembic and look at the trajectory.

USFDA (and other authorities) approved and compliant facilities.

Very good marketing team in the US (and other export geographies) who know how to exploit opportunities.

For all these to happen, the company needs to invest heavily in facilities and R&D which Alembic seems to have done quite well.

And if one reads the annual report, it is clearly mentioned that company has finished its latest mega capex of nearly 2000 crores in 2020-21 which will lay foundation for strong growth in ensuing years.

What happens now onwards? Maintenance capex is around 200-250 crores and putting up additional lines for injectables, increasing capacities for API etc would entail capex of around 150-200 crores annually. So per year, company will have total capex of 400-500 crores. Against that, consider the figures of expected net profit figures and you will get an idea about the kind of FCF it is capable of generating.

Looking only at the FCF figures and that too without taking the effort to go through the details from annual report (screener is a wonderful tool for those who know how to use it but also is a tool for guys to become lazy and have figures at the click of a button without looking at the complete figures. And here too, there could be errors so it is better to counter check from company published documents like AR, presentations etc. ) is like blind men describing an elephant from different vantage points. The guy holding the tail will say elephant is soft like a snake while the guy holding the tusks will describe it hard as rocks.

I have stressed earlier also on the importance of looking at the complete picture of a company rather than focussing on only a single parameter. For this one has to get the hands dirty and read the annual reports, listen to concalls, go through presentations, do scuttle butt etc. (whatever from the list is possible) and then take an informed mature decision.

Hope this helps.


Golden Words Hitesh Ji! I too was the victim of just checking for FCF, RoCE, etc on Screener and rejecting companies based on that. But spending some time on Reading annual reports and investor presentations give so much insights. Understanding P&L - Balance Sheet - Cash flow statements and Notes associated with it and co-relating each other gives complete different perspective.
Thank You.


Hitesh Bhai wanted to know your views on how to read EPS when it comes to interest cost being capitalised. Why some companies seem to show interest cost in P/L, though they have significant investments made in fixed assets, whereas some take it to B/S.
For Example. laurus has 1,057 cr borrowings and interest expense of 90 cr for March 20, which seems to work out at 8.5%, whereas Alembic for same period ending has borrowings of 1747 Cr and interest expense to 27 Cr, which works out at 1.5%.
Alembic seems to be capitalising interest cost and small extent of borrowings relating to Working Capital seems to be charging to P/L. Both Laurus and Alembic have made investment in Fixed Assets during the past periods basis the borrowings.
How does the EPS becomes reliable if interest is capitalised ? naturally the PE gets suppressed.



Do you track Transport Corporation.

While the company has seen a decrease in profit growth this quarter, it has been a steady performer.

Being in logistics, I always thought that there is potential for the company to grow

Hitesh Bhai

During the lockdown period you have guided me very well thanks for ur valuable advice.

I have considered your previous reply on nbfc sector ,keeping that in mind I was requesting you to have a look on two nbfc companies .

  1. Arman financial services
  2. Credit access gramin
    It was a truly different business model then other nbfcs the first one is the indirect exposure to the livestock (cow and buffalo) .
    If you bought cow at rupees 30000 today morning then it will give you a milk worth 150 rupees at the same day evening. None of the business in the world can generate search ROI.
    65% of armaans loan book is in such a case.

Credit access parent organisation is an European company having vast experience of micro financing it operates in more than 9 countries.
So that is the only reason which excites me about credit access grameen.

It will be better if you can elaborate your short and long term views.
correct me if I am wrong anywhere…

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According to one of the recent concall, alembic will expense the interest cost once the new facilities are commissioned.

As against that, alembic expends most of its r&d costs. If you see r&d costs as percentage of sales, it is one of the highest among peers.

So I guess these things tend to balance out in overall scheme of things.

Going forward, company would be nearly debt free (at net level) with big cash inflows from QIP, regular cash flows and milestone payment to be received from.TG therapeutics.

@nadkarni48 i don’t track transport Corp.


Hitesh bhai, Could you elaborate more on this point?

For example, Shilpa, a strong front runner in Oncology APIs hit 50 PE between 2015 & 2017.
Meanwhile Ajanta Pharma hit 30 PE during the same time period.

All of that time, both stocks looked overvalued to people who held them and then business conditions deteriorated, growth stalled, PE fell off a cliff, resulting in the stock price tanking faster than the PE.

Should the current set of sector leaders get to that stage some day, how should prudent investors identify and react to such excesses?

One option is to book profits occasionally and get some mental comfort.

A second option is to start selling 25-30% off the top, once some signs of a business / sector slow down are being noticed. This approach has been advocated in the book - The Thoughtful Investor. I remember the idea and in hindsight, should have exited my Bajaj Finance position much earlier than I did.

Which of the above approaches would be ideal, in the event that further rerating happens for the Pharma sector overall?


Hitesh Bhai, what is our opinion on low free float of stocks. One argument is to invest in shares having low free float. If we take a look at some high priced stocks which have created enormous wealth over the years is that it has a very low equity capital and out of the same say 75% is with the promoters. Therefore, in the absence of free float the stock tend to move upwards as the business does well and demand comes to play. To what extent this argument is material?


hello hitesh sir , how to overome from sunkcost fallacy, in gujrati ( vadhe vadhe levanu ,ghate ghate vechvanu) but i ithink in value investing its makes contrarian bet, if the share comes more down side you should buy or addition last ,question in value investing averaging value stock is best thing or bet elephant size one time ( warren buffet sir)