Hello everyone,
I have been looking at this forum for a while, and even asked one question recently. It does not look very active, but it also looks like quite a civilized place with literate and well-informed participants and thoughtful and valuable discussions. For example, I’ve been going through parts of the monster thread dating from 2012 entitled “Hitesh’s portfolio”. It’s quite interesting and educational reading.
I thought it seemed like a reasonable place to ask about an issue which is currently concerning me. It’s a relatively unusual situation, so I thought it would do no harm to ask the advice and opinion of people much more experienced than me.
I recently (December 2018/January 2019) inherited some shares of the Indian pharmaceutical company Cipla. These shares have been owned by my family for a very long time. They were originally owned by my grandparents. In 2009/2010 I wrote to Cipla to ask about the history of these shares. They said that the shares were first acquired by my grandparents in 1943/1944. Cipla was founded in 1935. As Cipla put it:
At the outset we would like to inform you that the information sought by you pertains to very old period…
I’m not sure of how they came to be acquired (Cipla didn’t say anything about that), but the version I heard from my mother was that the founder of Cipla, Dr. Khwaja Abdul Hamied, was a friend of my grandfather, and that he gifted my grandparents these shares. This may or may not be true. With the possible exception of Yusuf Hamied, there may be nobody left alive who knows the story. And it seems likely that my grandparents forgot about or mislaid the shares, otherwise they would have sold them long ago, and they would not have been passed down.
In any case, this brings me to my situation. I’ve been tracking Cipla’s share prices since around 2010/2011. I don’t have any background or knowledge of finance, so I left them alone. In hindsight 2015, when Cipla’s share price briefly touched 740, would have a good time to sell them, but I didn’t have the knowledge or confidence to do so. Around the time I inherited them, the stock price dropped steeply during 2019, to a level not seen since 2014 or so. So I let them be till such time as the share price would reach a more reasonable level. I had confidence it would do so eventually, because Cipla, which seems like an unusually stable and well-run company, was clearly doing well, even though its share price wasn’t. The early part of this year was particularly unpleasant, when Cipla’s share price briefly touched 350 or so. It was strange. I was wondering what would possess someone to sell
Cipla shares at under 400. The stock market can be very puzzling sometimes. I thought it would probably normalize at around 600, which has been its historic center of gravity in recent years. In the event, it jumped on the morning of 9th April from around 520/530 to 600, before falling back to around 590. It’s been hovering around there since. During the last close it was around 570.
With the arrival of the pandemic, as you know, the value of pretty much all the Indian pharma companies skyrocketed, included Cipla. So I’m now wondering what to do.
I don’t have a background in investing or finance, as I have already said. I’ve actually never purchased a single share in my life. However, I feel I would like to learn. I’ve been been doing some reading in 2019, and more in 2020. At the moment my overall conclusion is that the stock market is a really excellent place to lose money if you don’t know what you’re doing. You’d probably be better off gambling in a casino. The end result will be the same, but it will be more fun. So I’m not too inclined to get adventurous for the present.
For the moment, my pressing concern is what to do with these shares. I think it’s clear that just leaving them alone would not be a wise move. Cipla’s stock price movements of 2019 and early 2020 made that clear to me. So then the question is at what price to sell them, and if so, should I sell all of them? I was thinking that 700 would be a reasonable target to wait for, if it gets that high. I think Cipla is relatively unlikely to sustain at that level, and it seems “good enough”. And I’m currently leaning towards to selling all of them.
I spoke to someone at Standard Chartered recently who thought I should try to grab the opportunity of the state of the current market. He said the Cipla stocks currently offer a 10% upside, while the market offers a 30% upside or so. I think the situation isn’t so clear. The virus situation is ongoing, and it’s clear the Indian economy is going to be taking a beating in the short term. But it’s not clear how long the short term will be. And even after the virus has gone away, by the nature of capitalist economies, the economy may still stay down for a while. It’s also not clear if the market will fall further. So, I don’t think sticking with Cipla for the present is necessarily a bad strategy. Also, at present, I don’t actually know what stocks I would buy. I’ve been reading about it, but clearly making choices requires major time investments and a lot of background knowledge.
Currently the media is all abuzz about pharma stocks, though little has changed with the companies or their circumstances in 2019, when they were ignoring them. Right now my main concern is that in its manic-depressive way, the market may suddenly decide that pharma stocks aren’t so interesting after all, and the price will plummet and stay down for another year, or something.
I saw the recent Cipla earnings report for Q4 2019-2020; I even listened to the live earnings call on Friday 15th May. The results weren’t very good - I was hoping for better. And I’m not sure how the market will respond to it.
And it seems that the earnings for 2019-2020 have scarcely improved over 2018-2019, which means the P/E will stay about the same. Though they have managed to reduce the debt quite a lot, which is good. To quote from one article “The company’s debt stood at Rs 2,816 crore at the end of March quarter, 34.75 per cent lower from Rs 4,316 crore a year ago”.
But they are now planning to do fundraising of 3000 Crores, which presumably means they will be selling shares or something similar. I’m not sure what this means for the share price. I’ve read (and common sense suggests) that this can dilute the stock price and will certainly raise the P/E ratio. But I suppose they will try to sell them at the top of a bull run, or something. I have little idea how something like that would happen, and the announcement I’ve seen doesn’t give any further information. I’m also unclear why they have decided to switch from debt to fundraising. Any idea about this?
I realise it’s hard to predict where a particular stock is headed. Regardless, advice, thoughts, perspective appreciated. Thanks in advance.
But the question still remains as to when I should jump ship. One thing about Cipla I don’t like is the nepotism. It seems the Hamid’s have appointed their family members to high ranking executive positions on the board. And it’s not just figurehead positions, they seem to be running the company. They don’t do that in the West, for good reason. For some reason, the shareholders don’t seem to have a problem with this. At least, I have not seen any complaints. But perhaps that is just the way it is done in India.