@greengoblin
You have to ask yourself why did you fear the fall. That’s the main question. The problem with investing is the worst case scenarios prop up whenever there’s a dramatic fall. As long as the fundamentals are in tact falls are nothing but buying opportunities (When not in cash it can be annoying though). When laurus fell nothing changed… infact the deal got sweeter post Q2… so I bought more.
I have studied technicals/charts and I’m comfortable with them but now it’s just instinct based on all that studying.
When I see a stock testing a certain level for a very long time I don’t even need charts and I know the stocks I own inside out technically. For eg laurus fell to the 250-260 level last month and quickly rebounded. It fell to that level few days ago and was at oversold rsi (I use chartink for this) so I bought more. It’s nowhere near its 200 DMA so had to go based on the previous support. Deepak tested the 700 to 710 level for a while and did not break it. Knew the fundamentals were still strong so I bought more around then. Granules has been testing 360 to 370 for so long that I felt comfortable buying more. Alembic did a qip at 932 and promoters bought around 960 so I’m very comfortable buying in that range. Kaveri right now is a confusing company… everything going right but it’s been falling continuously. Thought the 200 DMA level was safe but it wasnt. So it keeps changing(470 to 490 looks like the rebound level)… I can tell you the average daily volumes of all the companies I own just from memory so I know if a fall/rise is meaningful etc too. If something bad changes within the company + support is broken then it’s a bit of a worry. So I know the supports/resistances of a company I own just by instinct. When entering I try to make sure I buy near 200 DMA levels but if a company looks seriously underpriced based on future earnings (for eg laurus post Q1) I just buy straight away. I only look at concalls, annual reports, quarterly balance sheets, screener and VP forums for individual companies when I own them. Everything else is just noise(current affairs is part of my work so I’m comfortable with that anyway) . I’d recommend this channel called Swedish investor. Covers all the books you’d need to understand technicals and fundamentals. I’d recommend picking up PDFs of those books and reading them after too. At some point of time technicals and fundamentals just blend into instinct tbh. It’s just about practice.
Also, one tip is use 2 software for portfolio tracking and stock market watching.
For eg Right now I have no cash and even if I did I wouldn’t want more laurus/alembic/granules since I’m very overweight in pharma. So I’ve removed them from my money control portfolio but kept them in my trendlyne portfolio which I only open around quarter result days. Since I can no longer add more and don’t want to sell for a few years I really don’t need to look at them more than 4 times a year. The forums on here are more than enough for surprises and news on these companies so there’s no need to even look their prices.
Deepak nitrite is probably one of my favourite companies and il always want more so I’ve left it in money control just incase I ever get a huge dip to buy( I am so confident with management that I know il be buying here for a really really long time)
Kaveri I’ve been annoyed with for a while so I don’t have it in either of my tracking portfolios lol. I watched it yesterday post results and bought some more when it dipped since I liked the results and then deleted it again.
So when I open money control now it’s only Deepak and my watchlist(though I do cheat and open trendlyne once in a while lol) .So there’s no panic whatsoever. Around results days I open trendlyne since that’s when meaningful rises occur.
Basically, once you build conviction for a company and buy… trust your initial instinct. Buy during dips. Don’t panic. Avoid looking at them if you do have a habit of panic. Remember that 3 to 4 years from now you might have a 3X to 4X bagger so why worry about a few percent drops. Rinse and repeat. I have huge targets for these companies over the next 5 years. There is no way I’m going to sell and let someone else benefit
@greengoblin
One more thing I’d like to add which honestly is the most important thing I can think of. Always set something to track within a company long term and always set a long term goal… and I don’t mean price wise.
For eg
With Deepak Nitrite I want it to turn into a re rated spec chem company. So as long as that story is on track I take bad quarters on the chin (for eg Q1)
Kaveri I want it to remove reliance from cotton and shift it to maize/rice and I want vegetables to contribute rest of the year. As long as that happens I’m happy.
With ITC it’s the obvious Fmcg other to track.
Pharma companies may have complex products but their management makes it easy to keep goals since they literally tell you what to aim for. With laurus it’s Q3 and Q4 have to be better than Q1 and Q2 and growth needs to be maintained with a new base post that. With granules they need to increase EPS by 80 percent this FY and then maintain 30 percent growth after for 2 years. With alembic they need to hit approx 2000 crores profit in 4 years based on their commentary.
Some companies look amazing value but I can’t figure out a long term goal and so I either allocate less or dont allocate at all even if they look like they’ll explode in the short to medium term since I wouldn’t know what to do with them after( or if they don’t explode lol).
Other examples of goals are Just dial and tracking JDmart once it launches. Casa ratio and margins/npas with idfc first. Racl hitting 500 crore revenue by FY 25 etc.
Once you have these things to follow and keep your eye on nothing else matters really. Businesses are long and slow moving entities. Ticker tapes with stock prices make them seem like they aren’t so ignore them.
I like putting complex thoughts into simple words. Posted concall notes of Q2FY21 in kaveris thread but il post my simplified investment thesis on it here.
Post the Kaveri concall it looks like by FY 26 they’ll be hitting a revenue of approx 1800 to 2200 crores (last FY was 930) based on calculations regards the topline expansion from management and contribution of rice/maize and vegetables. Also, they will have a good product mix with less dependancy on cotton/single products hence converting commodity cycles into safe long term cycles in a covid proof sector ie agriculture.
Their margins will improve too based on bottom line expanding at higher rate than topline. Current PAT margins are around 28 percent. Could be around 30 by FY 2026. So they could post around 550 to 650 crores PAT by then.
Exports will have kicked in by then to further increase the base they set, and their diversification into different crops will have been completed by then so this could be a very long term play even after 5 years
Based on EPS expansion alone they could be a 2X over the next 5 years.
Now consider the dividends/buybacks from the cash in hand considering no capex planned for a few years. Buybacks especially provide safety to ones position since they won’t be doing open market hence giving opportunities to book good profits along the way.
On top of that consider the PE re rating(especially since it’s now in single digit valuations) if they pull the above of for the next few years and the way things are going it doesn’t look like they’ll have any issue doing so. This is fully upto the market but considering the low valuations the chips are in investors favour I’d say. Median PE is at 16 and back when Kaveri was talk of the down pre meltdown in 2017 they used to trade at above 30 PE and who knows what will happen Once market sees that issues like cotton price dependancy etc from 2017 cant happen again.
There could be a 6 month window until Q1 FY22 to add more to my position since H2 FY21 is projected to be a bit flat and I will definitely be making full use of this window.
Audit /tax issues seem to be a thing of the past too but market seems to still be scared. Turn around stories can end up exploding in ones face. But here the chips are loaded in one’s favour.
A little patience will be needed but the market hopefully recognises this soon enough especially at current valuations.
Could end up being wrong since Kaveri really seems to be in nobody’s fancy ATM but the reward far outweighs the risk here imo with a nice MOS in this price range… and it’s rare to find something the market hasn’t priced in especially in an overpriced market.
Wonderful insights, Malcom! Thanks again for responding to my comments.
The most sensible thing I read today
The idea of a bull case is every company sounds convincing. Do you also maintain a journal of bear cases? Like what could go wrong in (y)our thesis. That may help in getting over emotional attachment, and exiting the company.
Have you ever thought on investing in US market? Or you believe that there is enough pie to eat in India, and our country has far better opportunities? Being a software engineer (worked at Microsoft and Amazon), I strongly feel that IT companies in India are subpar (look at the hiring bar. Happy to be corrected on this front), and yet TCS is the biggest wealth creator (Raamdeo Agrawal’s Wealth Creation Studies). Something I don’t understand.
Your PF is light on IT, auto, finance (after the exit of SBI Cards). Is this intentional (circle of competence)? Or you feel market is yet to uncover some hidden scars of Covid19 (mostly in auto, finance. IT is a bit Covid19 proof), and you are waiting for more information to help build conviction?
Hi, this is regarding your investment in Kaveri.
Kaveri used to be a favorite in this forum and you can go through the entire thread in the forum.I still hold this stock, but did sell of in between. Some questions to ask yourself if it is worth spending your time and money on this.
Many folks including me used to monitor the number of packets of cotton seeds they used to sell, it peaked i think in 2016 and never reached there again, We have been hearing about vegetable seeds and paddy for a long term ,have they reached their potential and projections.I dont think so, but definitely there are green shoots. they have flattered to deceive many times.Will there be similar margins in rice/vegetables if they replace cotton in future. Maize prices are down and therefore margins are down there. Can we predict the profits with certainty?
One important aspect which was mistaken as a moat was regarding the cotton seeds, one was mistaken in the thinking that it was due to some rigorous R&D, until one year Monsanto hiked the royalty and how dependent they were on someone else. Recently there was some news about pink ball worm and how they were affecting the cotton crop. Does Kaveri have the technology or do they have to run back to Monsanto. Monsanto will be wary of transferring technology after the last royalty incident.
3.Like you said one year the share prices went up with a high P/E and the promoters started selling, they themselves couldn’t believe it.
There are quite a bit of regulatory issues if you go back to the Kaveri thread, including actions by the Telengana government .Audit/tax issues cannot be completely written off as retail investors will be the last to know.
The P/E ratio and the cash gives confidence, is it worth the risk for doubling your money in 5 years, when you can do that with less risk in the HDFC bank/Life/AMC combo.
We have had decent monsoons for some time, dread what would happen if we had a bad monsoon and all the projections would go down the drain.
Iam also buying cautiously and would like to question the thesis.Why are people not buying in a booming market and despite decent results. There is lot of information asymmetry in India especially related to mid cap/small cap stocks and ordinary folks like us will be the last to know.
Looking forward to your inputs to do further research on this.
Yes I have a bear case for each. For eg with SBI cards it was the npa story and I left immediately upon it being confirmed. So I do have a bear thesis for each one of them and have no issues exiting if they come to fruition.
If I were to invest in tech I’d do it in the US market. I haven’t yet delved in it though. That being said I prefer investing in a developing country over a developed country for faster growth.
It’s purposely light on sectors apart from pharma, chem, Fmcg, agri since I honestly can’t figure out how the other sectors will react to a covid hit world. In normal times you can give rope to managers and companies and trust them but there’s always risk involved of them not performing. When something like covid hits the odds stack up against you even more. So I’d rather stay away from other sectors for now.
@biju_john
I agree with all your points. However, they are the reasons we are getting it at the current price and the rewards outweigh the risks for me.
Cotton used to be plan A and Plan B for Kaveri. They were walking a tightrope back then with one product dependancy. That isn’t the case anymore. Cotton has been underperforming for a while now and it’s not affected them as much as it would have before. Soon it will be 60-40 in favour of non cotton. So theres no need to count seed packets anymore .
Maize prices have dropped to rs. 10 too. Currently at around 13/14. When they rise to 20 rs (which will happen at some point in the cycle) the margins will be tremendous. The good thing about kaveri now is when cotton doesn’t perform they have maize. When maize doesn’t perform they have rice. If all 3 are mute they have vegetables which will contribute more meaningfully over 3 years. The fact they’ve managed to reach profit in all quarters is a huge achievement and shows they are on the right path. Infact regards margins… back in 2015 they hit their highest ever sales of 1159 and recorded PAT of 301 for the same. This past year they’ve hit 1039 crores with a PAT of 335 crores. So their margins are improving with their blended product mix.
The low valuations and cash in hand help regards regulatory actions since all the chance of bad news seems to be priced in currently. Their market share over many states, product mix de risk these issues a bit. These issues will always prop up in the agri space in India but the reward of government spending/tax breaks to drive the rural economy is always going to be a counter to this also.
It’s not just doubling in 5 years. It’s the dual drivers of EPS and PE expansion that I’m hoping for. If they really do what they say and manage 10 to 15 percent topline and 20 bottom line consistently for 5 years I’d bet on the market valuing it higher. This isn’t in our control though but the low base makes this a good possibility
Bad monsoons will lead to bad years. It’s a risk with all agri companies. Even if they go through 1-2 bad years over the next 5 their cash in hand(currently more than their PAT in one year) will see them through it comfortably. Will be eagerly waiting for the MET department to do their predictions in April/may every year though. Again, at these valuations bad monsoons and bad outcomes to regulatory issues are anticipated. Hoping that good monsoons and lack of the regulatory issues and stimuluses etc surprise the market instead.
Regards underperformance, if someone bought kaveri in April they’d say it’s performed well. So would someone who bought in 2010 and before. Currently it’s underperfoming for just a few months which is nothing in the grand scheme of things especially considering its been through a huge sale by prabhai. Last 2 years their performance has slowly but surely been coming back to pre 2016 levels. At current valuations I’m willing to take the risk. It’s one of those cases where I don’t mind taking a risk with my capital at this current stage.
In a few years when rice , maize click… vegetables click… exports click… and Kaveri is valued at 25+ PE with all the good news priced in is when I’d be worried and I’d defo not want to be a buyer then. Right now it seems like it’s a continuation of Kaveri from 2015 but this time with safety measures in place via better product mix. I think the past 5 years were a harsh necessity for management to correct their mistakes from 2016 and future proof the company and I feel they are currently doing a good job. We LL always be the last to know with any company in the stock market. Atleast their concalls don’t shy away from difficult questions and their annual reports and numbers are doing the talking atm. Considering they’ve categorically said they have no cases pending Vs them is good enough for me for now.
That being said it’s currently the lowest allocation in my portfolio for the reasons you mentioned since there are better options in the market especially in pharma/chem atm. Though during this covid period seeing a clear growth path with good business visibility is something Kaveri offers and the only clear growth paths i have seen apart from Kaveri in this covid environment is in pharma/a few chem companies.
If they do underperform and numbers aren’t upto expectations there won’t be covid for the management to blame and I’m very willing to take an exit if they do underperform and don’t hit their targets mentioned.
I rarely bought agri companies in the past, due its over dependence on monsoons. It felt like just buying and then praying for monsoons to be normal each year, to expect any sort of return. And then when monsoons were normal, I would keep thinking about selling out, since the monsoon the following year would again be a question mark. Was discussing this with an investor friend, when he suggested a different way of thinking. Think of agri stocks in blocks of 3-4 years. Thinking in this way, I did not care about the monsoon risk much. It should balance out (3 years is the maximum, monsoons have been erratic in a row. Though the past does not necessarily dictate the future). What I like about the agri space currently, is the fact that I do not need to take a call on COVID, policy tailwinds created by the government are on my side, space is super consolidated and valuations are not demanding.
Next, lets think about the entire value chain. Agri inputs (seeds, fertilizers, agro chemicals), mechanization (tractors, tillers, others), agri outputs and finally the secondary impact of rural India getting richer. Due to 3 years of bad monsoons prior to 2018 and ineffective policies by the government, no serious return was made in the space. Which meant that only 1-2 serious players were left in each sub category and no new capital came in. This is normally great news for the remaining players when the cycle turns. We can already see the profits of Escorts, Coromandel, Dhanuka, PI etc sky rocket
Coming to Kaveri, there could be couple of reasons of short term negative performance. Pabrai alone has reduced his stake by 2.5% or selling pressure of around 80-90cr in one quarter itself. It seems like a sell at every price, sort of a decision. Also, while Kaveri’s bottom line has grown well, profits of others in the agri space has grown much more. This is because of the drag from Cotton, which has matured. However, this time the company growth is more sustainable. In the next 3-4 years, Kaveri will have multiple legs to stand on - Cotton, Maize, Rice & veggies. It is either the market leader or rapidly gaining market share in each of these. IMO once the market assumes the growth of Kaveri to be sustainable, the re-rating could be meaningful. Cause it has most of the ingredients – Free cash, high ROE’s, no debt, low disruption, market leader etc.
Answering your questions –
I’m guessing volumes of cotton seeds were tracked very closely, cause it was the only game in town and if it slowed down, investors may have wanted to understand the reasons and probably even exit the stock. I would apply the same principle now – i.e. if it does not grow well in rice and veggies and if the share of cotton does not come down at a decent pace, I would exit
Given the market share it already has in so many important crops, as an investor I can only hope that their R&D is of decent quality and can tackle some of issues either by itself or through partnerships. I agree on the moat part of cotton seeds, they were merely riding the hybridization wave
Yes, audit issues had come up. But its not like someone is on their tails currently. If I even get a whiff of it resurfacing again, I will exit.
I agree with Malkd here. If it does well, I can see a EPS + PE expansion, which will mean much more than a doubler in 5. In fact, I expect a doubler in less than that period just on EPS growth
Thanks Malcolm and Rishit for carrying things forward. Ideally would have been better to carry forward in the Kaveri thread , but can maintain continuity here for the time being. We had quite a bit of people in this forum who had farming backgrounds and would give feedback in the Kaveri thread . They have all gone missing over the years.
Regarding taxation i really could not hear clearly in the concall about pending tax cases. The main argument put by IT department is that the income is not agricultural income and that it is business income to be taxed at 30%. since the seeds are given by the company to the farmers. Have to check if this basic issue has been cleared, otherwise it will keep haunting the company and liabilities could be huge.
Competitive landscape- most of us are aware of Nuziveedu and Kaveri only. Looks like there are about 500 companies. Some of the well known are Ajeet, Ankur many of are based in certain states . UPL has got its seed arm, Advanta. Rallis also has one, they took over a company called metahelix and they seem to be having a product profile similar to Kaveri’s. Competitive landscape is not easy, but the market size can accommodate them.
I have a feeling the vegetable seeds division could be a growth driver. With average incomes increasing people would like to increase nutritious vegetables in their diet .
@biju_john Yes that part of the concall was a bit difficult. I listened as closely as possible later via trendlyne and what i got from it was… there are currently no cases or litigations Vs Kaveri. None at all. However, there is one case Kaveri has in court but that is Vs someone else. This part wasn’t clear in the concall no matter how many times I listened to it.
One thing about this tax I’ve not understood… is that if it applies to Kaveri it will apply to most seed companies(nuziveedu has the same issue based on the reports about this back in 2018) too right?. So if implemented there’s a chance companies just pass the cost onto farmers and seed prices may increase. I’m not sure the government would want that to happen and even if it does happen a price increase across the sector may mean the tax becomes a non issue? Farmers would still need hybrids. Maybe the price of rice/maize etc would then go up due to further pass throughs. I’m not sure about this.
I agree that this is still a valid worry. Some days my mind wanders to maybe there’s something coming up that us small retailers dunno about and hence why all this selling is going on. Until there’s actual proof it just feels like speculation though. If it’s a legacy /previous dues issue they have the cash in books so are well placed for that too Vs competition
Company has confirmed they’ll grow faster than market next 3 to 5 years. Considering their position capex wise I’d tend to agree considering many other seed companies can grow with such low expense(private companies are difficult to check but I’d read a report a while back. Will check to see if I can find it). Kaveri is dishing out new hybrids every year without much expense and their cash position again is one of the highest in industry relative to size. Again, information on private companies is scarce but this is what I’ve noticed. So I’m not too worried about competition since like you said market size is big.
Vegetables will grow at 25 to 35 percent and management predicts 100 crore contribution within 5 years according to concall. Slowly but surely it will contribute.
I am not sure, how are you able to maintain such a discipline. I assume, your allocations to trendline portfolio is now fixed… neither addition … nor reduction to the portfolio … Do you plan to reduce the exposure if there is a run up in this portfolio
Also, does that mean Deepak Nitrite is the one where you would keep adding to the portfolio?
@Shankar
Pharma takes up almost 65 percent of my portfolio. I don’t want any more even when in cash since I’m very overweight as it is. Kaveri is a turnaround and I have to be extra careful. So will add only post concalls if the story is intact. Deepak I wouldn’t mind if it reached 40 percent of my portfolio so il keep adding when I can since I trust the management no end. ITC looks an sip candidate for the next few years too so no problems adding there whenever I get a chance since for me it’s the safest story in the stock market.
As mentioned before I trust the long term stories , I have things to keep an eye on long term and I trust the management of these companies . They are now just assets in my eyes. I have to keep them until the stories play out. The added benefit is even though everything in the economy is cyclical these sectors ie pharma, chem, Fmcg, agri have the benefit of being a little less cyclical than others(though still cyclical in the long term)
The metaphor for these assets that I like to think of is:
Imagine if I bought a flat for 50 lakhs in a suburban area which is under development and will become part of the city in 5 years . So the value of the flat will probably be worth rs. 1 crore+ when that happens.
However, the broker gives me an app which shows me buyers for the flat every minute of every day.
If I were to check the app a month later and I’m offered 52 lakhs why would I take it when I know that a few years later it will be worth a lot more. Similarly if there’s been some road construction failure and the project has been delayed by a year and I check the app and someone is now willing to buy it for 48 lakhs Why would I sell it at a loss when I know the story is intact and I just have to a little more patience? I’d probably only sell if I have some news that the project has been delayed indefinitely and may not happen for 15 years. Then I would have to take a loss or small profit since the fundamentals changed.
The same exact principle applies to businesses for me. The stock market gives you prices but if you know that it’s going to be worth a lot more later then why sell especially when you know that businesses need time to grow and sustain and it doesn’t happen overnight or in a few months or even years.
Ignoring prices and just concentrating on long term stories looks the best way, for me atleast, to make money in the stock market. I honestly, truly believe that the likes of Laurus, Deepak etc will be worth 3 to 5 times my buying price in 5 years if things go as planned. all I need to do is ensure the plan stays on course every quarter via the results/commentary/projections and not kneejerk based on prices.
The easiest part ie patience is sometimes the toughest thing to practice.
It’s been a while since I’ve done any portfolio update. Since it’s the new year I thought it’s time to do a post before the quarterly result news starts flowing in.
My portfolio is basically the same… heavy on pharma(Laurus, Alembic, Granules), chemicals(Deepak nitrite), agri (kaveri) and auto ancillaries(racl geartech).
Last few months I’ve been adding more granules especially when it fell to ridiculously low levels, more deepak nitrite when it fell to 700 and bought my first tranche of Borosil renewables around 160(going to be buying 4 more times over the next 1 or 2 years. Should get a lot of opportunities since next year should be flat and I want it long term). Also, finally began with small postions in idfc first which il be adding to over the year.
Not much news regards business performance since the quarter results are around the corner(though the updates from racl were nice) so the only thing I can look at until then is the stock price… and I’ve been pretty happy with the likes of deepak, racl. Deepak, especially, got the rerating I was banking on so I’m very happy especially due to my large stake in it.
Laurus rebounded beautifully after asm listing pressure and alembic is trading near all time high. Kaveri finally broke through the 550 barrier and granules has provided ample buying opportunity… so while my portfolio has been in a bit of consolidation mode while the rest of the markets have been going mad I’m still happy with its performance and I’m fully expecting pharma to break through its all time high post Q3 and Q4.
Now all that’s left is the short wait for the quarter results, concalls until further updates. Cheers.
@Shankar
I’m keeping my head down and concentrating on companies I can see eps expansion. The companies that show good earning growth will continue to perform well imo and hence why I’ve still stuck only with certain sectors ie pharma, chem, agri. Certain sectors that have rebounded I’m still in disbelief about and I wouldn’t be able to sleep at night investing in them. If there is a crash it will be in companies/sectors that have poor quarters/when economic data goes south. We ve reached the point where in some cases perfection is priced in and I can see more downside surprises than up. And some sectors like it/tech have just run up too fast and I wouldn’t be comfortable investing right now but if I had earlier I’d be ok id imagine.
That being said With the liquidity in the market, low interest rates and Bidens usa package coming atleast in the short/medium term we may continue being in a raging Bull market though
Overall as long as I can see earnings visibility I’m comfortable with my current holdings and I don’t plan on selling for a couple of years… but its getting harder and harder to deploy fresh cash and I may just continue to increase my current holdings on dips rather than look for new opportunities.
Don’t want to clog the granules and alembic forums so going to post the result expectations here and the checklist Ive made for me to follow for the same. When management gives guidance like these 2 companies have it’s easy enough to make projections and check on them
Granules:
FY 21 guidance is 70 percent profit growth so target for FY 21 is approx 525 crores. They have done 280 so far so they need around 250 crores next 2 quarters(approx 125 in each) to prove they are walking the talk.
Margins improved to 29.9 percent last quarter…need to see if those margins can be maintained
Management guided for 80 percent profit growth post Q2 for FY 21 and have now changed to 70 percent. Need to attend the concall and check of guidance for the future changes…currently it’s 30 percent for FY 22 and 25 to 30 for subsequent few years with FY 21 as base. If they prove to be correct then eps will double by FY 23 end. So just need to check that their projections are on track for the next 2.5 years.
Alembic pharma:
Management has quided for 60 eps for FY 21. So expect profits of around 550 crores next 2 quarters. So if it’s lower QoQ(was 300 crores each of last 2 quarters) it’s to be expected and should not cause any panic… however YoY it should be about 10 percent higher for projections to come through. If they manage an upside surprise (which is what I am expecting) and end up with higher than 270 crores during their result on the 19th of Jan then it will be a huge positive since their projections for next year (50 eps) could have some upside too. Margins hit 30 percent of late and hoping it stays similar this quarter too. Hopefully concall doesn’t mention more capex since we have enough until FY 22 for now and any more would hurt eps a lot. Also need to check if cough and cold, pedriatics has rebounded. And the usual domestic and international growth. And if the recent approvals have given any change to guidance in concalls or if they were already factored in.
Overall hoping granules did not overpromise and hoping alembic pharma underpromised
Written down my thoughts on what to expect for both upcoming results so that there’ll be no surprises when they do come out on the 19th and 28th.
Alembic pharma posted better than expected profits. 293 crores PAT for this quarter! Anything above 270 crores was according to guidance… Icici direct predicted around 280. So this is above market expectations and bodes well for the future. Margins maintained and even slightly improved. Domestic business growth is back. Api performed well. Hopefully cough and cold and anti infective start contributing again. Q4 now just needs approx 270 for management to meet their guidance which looks very likely now. Fantastic results
Just done with work so I can elaborate further on the results. Alembics business basically covers 4 verticals
USA. 2. Ex USA(ie countries other than usa and india). 3. India 4. API
The Usa market is purely generics. Since the fda is so strict there they have no worries regards quality so branded isn’t compulsory like in india. A lot of branded molecules will be going off patent in the next few years and hence why capex is continuing at a fast pace… to make full use of this generics cycle that will come soon. Until then growth here should remain stagnant so not worried at all by the flatness here. They continue to spend more than industry average on R&D but this has led to a total of 199 ANDA filings of which 137 have been approved…of which 6 came in the last quarter. Need to keep an eye on approvals as they get ready to push usa growth in a few years. Management mentioned that usa growth could slow down for a bit so this is along lines.
Growth in India by 14 percent YoY is fantastic considering india is branded generics, specialty. Branded generics command higher PE multiples due to higher margins so I’m thrilled to see it closing the gap with the usa.
Ex USA covers both branded(Europe) and generic (emerging markets) and growth here at 14 percent YoY. Always glad to see a diversified spread to reduce risk
API growth at 21 percent YoY continues confirming the story that Api is benefitting both from import and export changes in the industry in India. Will be a huge growth driver for the foreseeable.
Once api and domestic contribute more to the revenue and once the usa generics end of patent story unlocks there could be a huge re rating here. Capex for FY 22 could keep profits flat/de grow as per guidance but as long as the numbers make sense regards this story thats unfolding I’m very happy.
Need to attend the concall to see what the situation is regards cough and cold and anti infectives and confirm my thoughts above and I can stop looking at alembic in my portfolio for the next 3 months until the next quarter results come out. Cheers.
@paran_raja
I’ve learnt not to question the market in the short term. Maybe the capex overhang for FY 22 is scaring investors away. Maybe the result was already priced in and the upside surprise was nt too high. All I know is in the long run earnings growth is everything.
Personally, I think right now investors are playing it safe with pharma companies to make sure the thesis of a recovery is correct especially after the pains of 2015 to 2019. A couple more quarters of good results to prove these quarters weren’t one offs and I’m expecting a run for pharma and alembic. My investing horizon with alembic is a long one… so as long as earnings growth is visible and management walks the talk I don’t mind if the market takes a couple years to re rate etc since il probably still be invested even then.
