@manoopatil
See, i think the market is being a bit overly pessimistic regards Pharma. It’s been a few off quarters but as per most concalls of companies I’ve attended in this sector almost all of them have spoken about q1 FY23 being the quarter where things will improve again. Valuations of most companies in pharma have cooled now and hence why im interested in playing the Pharma cycle again at what looks like a bottom. Strides has been punished more than most companies and as you pointed out is now trading near its all time low and since things are on the verge of improvement i can’t see much downside now… they have their chestnut facility coming in this quarter, cost control measures in play, inventory and freight costs stabilising, operating leverage on the verge of playing out and the stelis optionality too over FY23. All of this makes this a low downside, but potentially high upside bet. There are plenty of other options in pharma right now that one could bet on too… Laurus Labs is still my favorite bet in this space and the potential of strides doesn’t come even close to it though as a business… valuations wise though i can’t find much better than strides at present. With current market conditions i don’t really feel like there’s much opportunity cost too with me parking my money here since we don’t seem to be in last year’s raging Bull market at present.
Hi Malcolm
Solara active pharma and Neuland have been taken to cleaners by market recently.
Solara gave a big shock with its Q3 results and Neuland continues to over promise and under deliver.
Have you looked at these companies?
Would like to have your insights
Thanks in advance
Disc. Tracking both the mentioned companies
Hi Malcom,
Any thoughts on Sequent scientific? Focussed on animal health and margin seems to be bottoming out and can grow from here onwards.
It would be good bargain if it corrects 20% more and I’m expecting it to happen. Also it’s good to know that u have entered Strides, I too had bought it at this level only, but before it went up last year.
My buying spree continues in this red market since all of a sudden a lot of bargains have popped up. Today i begun a position in Krsnaa diagnostics near Days low. Got interested in it thanks to @Chins brilliant post. I had assumed the diagnostics sector would have been overpriced but was surprised to see them trading at non insane valuations. My mom also happens to be a pathologist who just retired this year after nearly 40 years with the governement so it was easy to do scuttlebutt here and understand the nitty gritty of the business. It’s now one of the easier companies to track since i can get her input and we get to track it together so that’s a bonus 
… i do like a getting companies on discount so the 30+ percent drop since IPO is nice too. Technically good time to enter also(if this base does break il double my ownership wherever the next base is set. I’m in no rush here). It almost seems to good to be true… a few caveats being the over reliance on governments and the fact that even radiology and pathology have got a boom indirectly due to COVID (even though it won’t fall directly under COVID revenues so this will be impossible to track) and not sure how long that will last.
@narenarora @PraveenKG
I never really found neuland, sequent, solara to be that special and the valuations were crazy over the past year so i never delved too deep since i was sitting with a lot of pharma as it was. So i cant really comment. I doubt il be looking at any more pharma companies tbh… Laurus and now strides is enough for me. Im getting a bit burnt out tracking the sector tbh and hence why im branching out into the likes of Edelweiss and Krsnaa
Hi Malcom,
Malcom, I don’t find Krsnaa highly undervalued. I Can say its reasonably priced. Its December eps is 5.49. So multiplying it by 4. Annual EPS comes out to be 22. Share price is 644. Hence pe is apx 30 which is similar to Thyrocare. Lal path trades at 60 pe. But its a market leader. Am I missing something?
I agree. It’s not undervalued. It’s just not insanely overvalued any more. I doubt we ll get companies in diagnostics at a lot cheaper than this and considering the run they’ve been on the past year im not taking the chance of missing out now and paying an even higher premium later . That being said To be safe I’ve only built half a position and will build the rest if it does indeed fall and form a lower base.
With the long term contracts with governments and their success rate regards winning them, underutilized capacity, huge growth rate of radiotherapy/path business , low COVID dependency (though again… their core business is getting a undetermined amount of indirect benefits from COVID which will be difficult to classify but unfortunately for public health looks like it may be the norm for a few years) and the sheer pace at which they are starting new centers Im comfortable paying a bit of premium here.
Thyrocare is at 4500 crores mcap and now that COVID revenue is slowing down is running a similar run rate of revenue per month and op margins as krsnaa at 2000 crores mcap hence why their PE is optically similar… thyrocare is actually a lot more expensive.
A year from today id expect both companies to have similar PEs and revenues with the COVID revenue cooling down and with more visibility for krsnaa due to the long term contracts.
Lal pathlabs at 60 PE with COVID revenue cooling down is a bit too expensive for me especially since it’ll be even more expensive since this is still optically just 60 PE.
Krsnaa is a no brainer for me vs them.
@Malkd understand your thought process, with ~30% OPM, how much of this from the income statement actually reflects as cash flow:
- Trade Receivables - 20-25% of revenues, need to see if this is normal peer industy-wide
- Trade Receivables > 60 days is what percentage
- Huge fluctuations in revenue (and eps) in last 5 Qs.
Considering its the government that pays them trade receivables won’t really compare with peers and will always look off and above 60 days. Main thing is the government has always made their payments and haven’t missed any. But yes… one of the key risks going forward is monitoring the government. It’s also one of the main reasons I like the company though (safe long term contracts with an increase of 3 to 7 percent per year). There is immense potential here regards government contracts in this space and I have confirmed this in my own state too… our government medical hospitals have always had their own path departments and diagnostic centers… but now they are opening super speciality blocks and planning on outsourcing to companies like krsnaa and thyrocare.
Last 5 quarters included huge amounts of direct covid related revenue and profits. Hence why the ups and downs. Expect things to cool down a bit now since we are seeing non direct related COVID revenue contributing a lot more so this current quarter was a good base to see how things would look like going ahead and i was pretty thrilled by it. Add the headroom they have with increased utilisation of current capacity+ increase in number of machines and centers + recent IPO cash at higher valuations to work with+ potential to go to a large number of new districts and the story here does have some steam in it. It could definitely be a bumpy ride in the short to medium term considering valuations still aren’t that great though.
It’s difficult to explain. Sometimes you just see the next few years of a company ahead of you and can’t help but invest in it. Thats happened here
Another very intriguing option is zydus wellness. Fantastic promoters and some surprisingly well known products in their portfolio that would surprise anyone at first when you realise they are a sub 10000 crore company. Infact i think it’s been the company that I’ve tracked the longest but never owned. Began looking at them Post the heinz acquisition in 2019 when they literally doubled their sales potential with the acquisition. The worry then was that they had a lot of debt (acquisiyion of around 5000 crores which was half it’s market cap and debt of 1500 crores!) due to the Heinz acquisition and this would be tricky paying off. When covid began it looked like this would get even trickier and i was hoping i could pick it up cheap but even during the 2020 crash it held its ground at around 1200. Considering covid and all the problems therein they’ve done a great job though and they’ve managed to bring their gross debt down to just 315 crores… which is approximately the profit they can make in a year going forward so debt is no longer an issue. Hence, even though they are the same market cap as they were pre covid I’d say they are much more valuable right now considering their debt is manageable and they’ve had 3 years to iron out any issues with Heinz. It’s currently trading where it is due to a horrible Q3… however, I’m fully expecting the company to do well in Q4 and Q1… the two quarters they have a majority of sales in. According to their concalls and their history: Q4 and Q1 should see margins of 24 percent or above and have about 60 percent of their sales. Plus the cost of milk/oil etc are at peak at the moment and input costs should cool down over the next few quarters.
With reduced interest costs, decreased input costs from the peak, better sales performance in Q4 and Q1, great products like sugarfree, glucon d and complan and variants within those brands that they will be able to spend more on via advertising in the next few quarters as costs cool, a move towards making exports approx 10 percent of their revenue in a few years… makes this one of my favorite FMCG bets in the market.
That being said … while it is at a good price, there is a huge chance that we may just see stagnation for a few years here since it will take a while for margins to improve and growth rate may be a bit too slow… and for that reason I’m not too keen currently. I will take the plunge at 4x sales ie 8000 mcap (price of around 1200 which is a long term support ) since it will be a low downside bet if it does reach that point… and will be tracking intently until then (not holding my breath since this 1400 range will be difficult to break and they have some good quarters coming up)
Edit:
On second thoughts I’m going to adjust my investment strategy here a bit using an SIP. Considering they have been able to increase their prices + cost of material should cool down soon + q4 and Q1 are looking to be fantastic quarters + interest payments are now manageable i can’t see zydus breaking it’s long term supports and falling much below this 1500 to 1200 range.
Going to start with an sip today with a first of 5 planned tranches. If q4 or q1 is nt upto par then can definitely see the stock price crashing and i will add further tranches then.
However, I’d say odds are they’ll be good and the price may have bottomed out. Considering it will be a while until their new products + exports add significantly to their top and bottom line + the time and adspend it will take to kickstart growth again in complan and glucon d i don’t expect fireworks here for a considerable amount of time which will allow me to invest via sip nicely over the next year. Starting now itself since the market may surprise with an upward movement and i would want some skin in the game to stay interested. First tranche completed today
Why look at trade receivables in isolation? Look at trade payables too. It’s almost the same. This means that against the trade receivables co is able to offset payables
Easiest way to answer this is to listen to concalls. They were 1 offs in the p&l.
It’s a very interesting time in the market. Ive been keeping aside some money to deploy just in case there was a reaction to what was an already known event… ie the ukraine invasion… and i deployed it today. Could the Ukrainian invasion snowball into a world war? Could be… in that case wherever my money is it will be useless. The more likely scenario is sanctions will bleed Russia dry, nato will have to remove all hope of ukraine joining them, Germany goes dark for a few days due to natural gas issues from Russia and the world goes back to the way it was in the medium term with a few compromises/short changing Ukrainians. My point is we can’t aim to figure out how this well end. It could end either spectacularly well or badly… with a more likely scenario lying somewhere in between. Oil prices will rise, inflation is peaking… but in the long term all of this will just be a line on a graph and long term … if one has faith in the world and economy… things will stabilise.
I have finally deployed my balance money today. Bought more of zydus and am now reasonably happy with my stake size here… also began dipping in to a controversial stock ie Car trade tech. I missed the entire tech stock bubble last year and i dont have anything related to autoo in my PF. At current valuations it seems a good buy to my eyes. Gives me the opportunity to learn a new space too. That being said there is no visible bottom in the charts so I’ve just dipped my feet in with a first tranche in a planned 5 tranches. Will add more near visible bottom formation or if they perform better next few quarters or if available at book value(unbelievable that it’s near this already considering IPO valuations… shows how people and companies get carried away during IPO season). Been tracking this company since it’s IPO… where i liked the company but hated the valuations. I can stomach the current valuations and hence why I’ve finally taken the plunge. Probably the riskiest stock i own though… both fundamentally and technically. Also the most exciting with a huge upside possible once the cycle turns . Also added a truckload of ITC to my wife’s PF.
Now that my money is deployed I’m going into hiding again and will avoid watching the stock market for a few months. We could be in for a crazy few quarters with the Ukrainian invasion, feds with their interest rates, rising inflation etc coming in. Best to just do other things and avoid letting your mind wander into dark places during this period… personally I’m going to be concentrating on my business now that schools/colleges are opening everywhere. Hopefully il have enough money available to deploy in a few months if there is indeed a crash /i wont be able to deploy any money since the sensex will be stable or at record high … happy with either outcome
i believe in the same strategy when you are getting a chocolate bar worth 100 for 70 buy it ,doesn’t matter if it goes to 50 sooner or later it will be back at 90 or 100.
What are your thoughts on someone who has 40% money parked in irfc, embassy riets and itc. Is it a great idea to sell these and get into investment where asset value far exceed valuation one example would be alembic ltd or idfc wher company hold asset far more then there market cap for short term?
@Patrioticindian
Yes this story has been more than a decade in the making since Georgia. And if one fears investing now then one should fear investing for the next decade and the past decade too since this will remain a problem forever. I feel bad for the Ukrainians… but as far as developments here are concerned i see it going to the bottom of the news cycle in just a few months the same way that Crimea did along with other wars between two countries. Considering i can finally see cash flow visibility now that schools and colleges are opening I’m in a good mood to invest now more than I’ve been in a long time
@raku
It depends on where ones stage is in life. Tbh if id reached a big enough number i wouldve just invested in the likes of ITC/reits and retired with that as my salary when they crashed last year. If one is young and is building capital and has a risk appetite then moving into other companies could be good. I’m somewhere in the middle so personally won’t be touching my stakes in those companies since the extra “salary” via dividends/payouts has been a huge benefit through the past 2 years and feels like I’ve derisked my life a bit. Was lucky enough to get reits and itc etc at historical lows and I’m glad to hold and enjoy the extra bit of safety the dividends provide. There is a case to sell reits though… they are now trading near NAV values so there won’t be much upside anymore. Could be a case of selling now and buying back later when the discount to nav broadens. I won’t be selling though(will sell just a small amount for capital gains purposes from embassy since it does look fully priced and i don’t want to sell anything else)
Incidentally only yesterday night I did a complete reading of CarTrade VP thread and got to know that they’re less popular than cars24 and cardekho. Also with OlaCars have a lot of investors cash that they’re burning up to get participation in their platform. Global chip shortage has made new car production slow down causing tremendous interest for used cars. And yet CarTrade isn’t a popular choice. Today with almost all companies are on fire sale and you picked CarTrade for your first tranche of buying. Interesting!
Disc:
I too picked up a negligible tracking position today. 
@Sudhakar_Subramanian
I’m as surprised as you by my decision tbh. Today was a day i could have added more to my idfc first stake/fled towards safety with itc/added more to my Edelweiss stake/finally bought rajshree polypack… however, i ended up with cartrade. I just couldn’t believe i finally got it near rs 500. I’d kept a mental target of buying it around that figure if it ever reached there and i took the plunge. Maybe I acted a bit rashly, however, the fact i was paying around rs 1 lakh for 200 shares which would ve cost me 3.3 lakhs just a few months ago when nothing has really changed made me take the plunge. It’s not an ideal company to own Il give you that… but i doubt it’ll be available at much cheaper than today’s low considering the growth prospects when the cycle turns. It doesn’t need to be more popular than the rest at 2000 crore mcap with approx 33 percent of mcap cash in hand, hitting a 300+ crore revenue runrate and profitable(usually) in a fledgling industry with such a small penetration is prime for a good run in a future bull market. Let’s see how it goes… sometimes just buying a company that gives me a new sector to study (i didn’t own any auto/platform company) is worth it. Could be a very volatile few months owning it but i dont have too much on the line to lose here yet… will scale my stake according to their performance next few quarters
And these are my portfolio companies in order of weightage since i got a few dms regards the same:
My PF:
Laurus Labs - Pharma
Deepak Nitrite - Chemicals
Jubilant ingrevia - Chemicals
Vaibhav global - Online Retailer
Intellect design arena - Digital BFSI
Idfc first + idfc - Banking
Ugro capital - NBFC
Krsnaa Diagnostics - Diagnostics
Zydus wellness - FMCG
Car trade - Auto platform
*With Laurus and Deepak still making up more than 2/3rds of my PF
Wife’s safer PF:
ITC - FMCG
Embassy office - Reit
Mindspace - Reit
Indigrid - Invit
Rites - railways
Oracle - Digital BFSI
Edelweiss and Strides Pharma ( to add some alpha to her PF)
*ITC and embassy still making up more than 50 percent of her PF
Cheers
Couldn’t agree more. The company has Rs 900 crore of cash/liquid investments and considering online platforms are not even 10% of the used car market, there’s enough for everyone incl new entrants like OLX and Ola. Where I see CarTrade as a differentiator is the CV market which is a space where only Droom are present currently and Shriram Automall is already an established brand. Ad revenue growth has been steady and their scaleup into physical stores will hopefully help in re-rating over next few quarters
Have started a tracking position since 1000 levels and now considering to add it to my core portfolio.
@Malkd thank you. Did you reverse the purchase decision on strides. I do not see it in this list.
@james_kerala
It’s right at the bottom in portfolio 2 ie the alpha in my wife’s portfolio alongside Edelweiss (made the second tranche here today too)
Dont want to waste a post with just a few lines so il put a few thoughts on Edelweiss here and why im buying it especially during a time when the stock market is crashing.
At current market cap of 5000 crores it’s the perfect bet for someone with a long term horizon…why? Since, anyone who has a horizon of under 2 years is getting out and that has led to the price dipping to a level that is ripe for investment. The way i look at it is if one were to extend their horizon to 5 to10 years here(which is the horizon i am looking at) then a lot of optionalities occur. With that horizon one is basically getting 3 fantastic businesses for free ie Wealth management, asset management and insurance. These 3 alone will be worth far more than the entire Edelweiss mcap currently in a few years. The ARC business is basically a bad banks business so it could backfire but at the same time they are handpicked bad loans so they aren’t the same as a good loan going bad and causing issues so I’m not too worried about that.
The market is currently assuming that the credit business is going to go to zero and take the whole company down with it. I am a bit more positive then the rest of the market here.
Edelweiss is making a concerted attempt to decrease wholesale loans and in a few years the risks here will be lowered to an acceptable value. They seem a bit too paranoid now…which is a good thing imo… and they are also reducing their housing and retail loans… it’s almost like a huge reset button is being hit here in their credit division as they move towards safer asset light colending with reduced origination. That being said another liquidity crisis ala 2018 in the nbfc sector could cause a lot of pain the short term here and considering their high borrowing rates i won’t be surprised if that’s why there’s so much pessimism around it. At current price I’m willing to take the risk though.
A lot has been spoken about the management… but i personally like rashesh Shah(side note: radhika Gupta is married to my wife’s distant cousin and is one of the reasons why my wife agreed to let me put her money in what looks like a terrible investment)… and up until 2018 he and his team were hailed as blue chip. A few wrong decisions and a lot of bad luck later and the perception has turned against them. The forex scam with capstone turned out to be smoke without any fire… and the arc scam looked to be either a company walking the line of desperation due to the liquidity crunch/a shareholder who i feel bad for but i dont see too much wrong doing . Perception is fickle though…and when their credit business is derisked a bit and their other businesses grow in size/get demerged I’m sure perception can take a 360 degree turn from bad to good too…
Let’s see how this works out. I’ve made 2 tranches of my planned 5 so far… one at 62 and one at 54. The next one will be at 40 to 45(if it does reach there). And will average on the way up with my last 2 tranches if it bounces back to 50 to 60/things slowly improve(won’t average below 35 since then there might really be some cockroaches i havent seen and will never add above book value since there’s a lot of risk here). All in all this will be a painful 2 to 3 years… but it looks like a bright 10 years.
Disc: i am not a sebi advisor. So please take my posts with a pinch of salt. I’m just a patient person who loves buying ok companies at throwaway prices vs great companies at expensive valuations
Hi @Malkd,
The below post has an article on how ITC could benefit from this Russia Ukraine crisis.