My Cipla Holdings - looking for advice and opinions

Q&A: Questions & Answers Portfolio Q&A
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Hi @Rajesh1975,

Thank you for your message. I’ve done a little reading, but I agree that it would be a good idea to dig in more. I’m not even that familiar with Cipla’s financials. For example, I don’t understand how their recent debt reduction factors into their Q4 results. Does it mean their profits were effectively better by the amount of the debt reduction, or is something else going on? I also don’t understand the implication of their fundraising announcement, and the time frame of this is also not clear to me.

I’m not familiar with Nifty Bees. I thought it was a exchange traded overnight debt fund, but it seems that the term may include equities as well.

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Hi @hitesh2710,

Thank you for your message. I’ve been reading your posts in other threads, particularly the one called “Hitesh’s portfolio”. They make quite interesting reading. It’s surprisingly hard to find sensible analysis of Indian markets online. Discussions in media are mostly a waste of time. Perhaps they cannot say what they really think because of legal/liability reasons? Who knows.

This forum does have some valuable discussions, however.

I was actually relieved that the share price didn’t drop because of the Q4 results, which weren’t very good. I hope they were improve soon. I imagine April’s results will be weak too.

My current thinking is to wait for Cipla to hit 700 and then sell everything. Probably sell a small amount before that, in case something goes wrong, and it doesn’t make it to 700 at all. I don’t know whether this is a good strategy. I’m not even sure if there is a good strategy. For now I’m just waiting to see how things develop. It could take a while for Cipla to get to 700, unless people really pile on, or its sales dramatically increase.

Do you think that what the CEO and other company officers are saying can be taken at face value? I.e. do you think they are describing the situation as they say it? I.e. the interview link I just posted.

A lot of the good consumer stocks still look very expensive. Perhaps they were continue to be so. Like Asian Paints, which is still at 50+ P/E. I can’t see why anyone would want to purchase at such valuations. Even though I’m just a beginner, it seems to me that if you buy at such prices, you’re betting that the company will continue to do well for at least the next 5 years or so, which seems like a big leap of faith. For example, if a stock like Asian Paints improves at 15% for the next five years, and then something goes wrong, and the stock plummets to say 25 P/E, that would wipe out all the gains.
I.e. (1.15)^5*0.5 = 1.006. It’s possible that this can’t happen for some reason. Like I said, I’m just a beginner. I’m sure companies like Asian Paints are very good, however. And the stock price seems very stable. Even in the current circumstances it hasn’t moved much. But it’s possible to imagine circumstances in which paint sales would be impacted severely over the longer term.

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@faheem
It was great to know that your family (and now you) hold Cipla shares for very long period (probably since inception of the company). It was just concidence that yesterday I completed my working on Calculating return to sharheolder (assuming an investor hold shares since IPO without subscribing in any rights/preference issue and also not selling any share since listing). As per my calculation, Cipla over 37 years (Listed on BSE from July 1983, your family return may be different as you hold share before listing in my understanding. The company took very long time to get listed although started operaton in 1935 while got listed in 1983, nearly 48 years from inception on BSE).

If my understanding and calculation are correct, the IPO shareholder (holding orignial share without any cash outflow for rights/convertible debenture etc and also not selling any single share), would have generated XIRR of 56.8% over period of 37 years !!!.

During past 35 years (FY1983 Oct end to FY2019 March end) net profit for the company compouned at CAGR of 25.73% p.a.

Normally, shareholder return are related to net profit growth. However, in case of Cipla, the company was traded at extreme low valuation at time of listing. In year ending 31Oct1983, EPS was around Rs 133 per share while share price as on 14Dec1984 was around 140, giving PE of only around 1 times !!! In fact, the price of Rs 140 I got from price list of 21Dec1984 which stated last trading date being 14Dec1984. As on 31Dec2019, the company trade at PE of around 25 times (FY19 EPS Rs 18.96 as per my working).

So singificant return generated by shareholder are due to PE expansion from 1 times to 25 times over years. In my limited working on Indian market past return, this is the highest return I have seen for the companies over three decades. Return generated by Cipla is amazing !!!

If life would be simple and past was indication of future, probably Cipla is best investment. However, with current PE of 25 times and kind of maturity Cipla has achieved, I would suspect that Cipla would again generate upwards of 50% CAGR in next 35 years. However, one can expect return in line with market. It would be difficult to estimate future return. Also, One need to appreciate Mr Hamid for creating such a wonderful business enterprise. While he is trying to hand over management control to professional team, only time would give answer whether the new management can match the legacy of Mr. Hamid.

I neither recommend you to hold/sell the investment in Cipla.I am not SEBI registered advisor. Only thing I can tell (knowingly/unknowingly) your family has invested in the company which has generated among the best return for shareholders in Bombay stock exchange since listing (period more than 30 years). It is simple to have average of more than 100 years in 10 test, but very difficult to have average more than 50 in 250 test. We can say similar for Cipla past return.

I am enclosing my working file for your reference. Refer to cell AC43 for XIRR in Cipla since listing and cell AW43 for net profit CAGR.

Discl: My working may be wrong. Not a SEBI registered advisor, Not recommeding investment, No holding.
Cipla Past Return.xlsx (52.6 KB)

14 Likes
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While Frauds are ongoing instances in every sphere be in Real estate, equities and everywhere in world - the landscape of real estate investing has also evolved over years. Land records, property records are registered with Adhaar and biometrics now. Also, RERA has made things little better. In case of residential appartments, in Mumbai you will find many reputed builders who have professional teams. Yes, big land deals or niche properties may involve different category of people but if your requirement is a simple residential appartment or even commerical - you will find many professional sources. Regarding delay in posession etc. - The risk is borne by investors as they get the property cheaper in under construction stage. Maybe 90% of start ups fail and their investors do not get money but I would assume 99% of real estate development complete (specially with ones from reputed builders, although get delayed). Even in Tier 2 cities, things are getting more streamlined with every passing day.

Now, why all above is relevant to topic is because I read you have significant networth in Cipla. Selling all that is easy with the click of a button. The most difficult part is, what do you do with the proceeds and do you have investment avenues better than what you sold. That makes you really ready to sell and not the share price target or future of Cipla.

If you check US history, there are countless banks and people’s safe deposits gone with collapse of Banks. It is a different story that now governments do not let banks collapse but who knows FD are safe. Coming to Debt funds - I feel they are the biggest joke as people flock to them for just maybe 1-2% extra returns than FD but do not realize the risk of defaults of underlying asset the funds hold. Overnight Funds are again a marketing gimmick by these Fund houses - If I remember just a decade back Lehman Brothers collapsed overnight. I will not talk about Gold. Equities and Real Estate are the safest bet for an Investor I believe. And in equities, as rightly pointed out by old timers of this forum, luckily your family owns an excellent, well run and relatively safe sector company. So, that makes decision to sell even tougher. The golden advice is from Hitesh, to keep that much in equity or in one firm that you do not lose your sleep - but what about the rest. Is the rest as safe as you think - That is the bigger question.

(Also, as a practice I discuss on Threads and not on PM as seniors here have pointed out that thread discussions benefit the entire community)

All the best!

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Hi @dd1474,

Thank you very much for the interesting commentary and calculation. I must confess that I don’t understand your calculations at first glance. One question - are you assuming that dividends are being invested back into the stock or not? I assume not.

Do your calculations show that 100 shares in 1983 would have become 1.8 million share in 2020, or am I misunderstanding them?

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100 shares of 100 share paid up now become 1.8 shares of Rs 2 paid. Refer to Column R for various Bonus/split. Do you have shares in physical? This is based on my understanding from information avaialble in public domain. You may check on Moneycontrol and other website which provide bonus and split information for details.

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Hi @dd1474,

Yes, I see the bonus/split in column R. No, the shares are demat, and have been demat for a long time. I’m not sure if holding physical shares is even an option any more.

Sorry, I don’t understand what “100 shares of 100 share paid up” means. But there is still a lot of terminology I am not familiar with. Can you elaborate. And you wrote “1.8 shares of Rs 2 paid”. Did you mean to write 1.8 million instead of 1.8?

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Hi @Investor_No_1,

As I said earlier, I’m not an expert, and certainly have not done a study of the topic.

What I wrote is based on my limited perceptions and experience. It’s likely that it’s distorted and/or incomplete in many respects. It’s hard to have a complete picture of a place as large as India. Also, my family is based in Bombay, and it’s possible these problems are worse here.

And it’s certainly possible to purchase a flat/apartment (for example), hold it without issue, and have it appreciate in value. Not everyone in the real estate business are crooks. And it’s probably possible to find big professional operations that aren’t trying to cheat their customers.

But regardless, the property market in India has a bad reputation. Regulatory authorities in India are typically not functional. And owning property, particularly in India has a lot of overhead and disadvantages. For one thing, you have to take care of it, and make sure squatters don’ move in. If you are renting out, you have to deal with tenants, make sure they pay their rent, and don’t destroy your property. And eviction is another thing that does not seem to be functional. A lawyer recently matter-of-factly told me that an eviction process (she was referring to Bombay) takes 40 years.

On the other hand, the value of your property, especially in a prime location, is unlikely to drop to near zero overnight, which is always a possibility for a stock price, though I suppose also unlikely for a good and established company. (But Cipla’s share price did drop by around half between 2015 and 2020.) So there are pros and cons.

By RERA, I assume you mean Real Estate Regulatory Authority, But like I said, regulatory authorities are not very functional, and are not interested in being accountable. This is very much in evidence, whether the problem is collapsing bridges or buildings or banks.

I’m puzzled by your reference to overnight debt funds. My understanding is that they are safe, because the money is just being lent out overnight. Neither equities nor real estate are really suitable places to park money while deciding what to do with it. Overnight debt funds were tentatively my top choice for keeping money. Banks are clearly not the safest places. Are there records of overnight funds collapsing in India? Do you know something I don’t? Please elaborate. I also don’t follow the reference to Lehman Brothers. How is that related?

I suggested PM because this topic is off-topic on this site. And sometimes people object to off-topic conversations.

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So my apology, 100 share of Rs 100 each paid up value (would mean one need to invest Rs10,000/- in IPO assuming IPO was at face value) and just hold those share, that investor would have ended up with 1.8 million share of Rs 2 each paid up value. Since you own shares in Demat, all bonus etc (Post 1999 when trading of key share was compulsorily demateriliased in phases) would have been credited to your demat accout.

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Hi @dd1474,

Thank you for the clarification.

I have a question about this. Would it make sense, and would it even be feasible, to check whether all amounts that should have been credited have in fact being credited, including dividends? As far as I know, this has never been done. And my own information about the whole history is very scarce - I just have a couple of documents with minimal details.

I suppose it’s unlikely that some amounts have gone astray, but it might do no harm to check, assuming it would not be too difficult.

Opinions, suggestions, comments welcome.

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Check on enclosed link with information about folio and name to get details of unclaimed dividend on your account. hope this is useful.
http://www.iepf.gov.in/IEPFWebProject/SearchInvestorAction.do?method=gotoSearchInvestor

1 Like
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Hi @dd1474,

Sure, but I was thinking of a more wide-ranging and comprehensive check than just a web form. Thank you for the link - I wasn’t aware of this service.

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Pls dont get puzzled as that was not the intention. After lot of research, I had invested small amount in some debt funds. My idea was protection of capital paramount, therefore I chose the safest ones - Short duration, ultra short duration funds. Overnight funds are probably now coming into forefront more. Ideally an ultra short duration fund should have assets from least risky origin, but when you see the portfolio of these individual funds, baring HDFC AMC and maybe some minority other I did not check, all others had significnt risky exposures to questionable corporates. I was surprised and my surprise became a reality when recently some debt funds of the old and famous Franklin Templeton went bust. A known retiree had significant exposure and his money is stuck in those funds now. Although news covered them as credit risk fund, but there were some low duration funds in the affected funds as well. Although this was not a case of underlying investments getting bust but rather an issue with the market conditions. But going by the portfolios of most of the debt funds, how can a renowned fund house invest the money of a supposedly low risk ultra short duration fund in risky assets and if they do then they can do that even in overnight funds as well. Example of Lehman brothers was because the company busted overnight. A day before it was supposedly well running. If my overnight funds has say a 7% exposure to the bonds of a corporate which gets busted overnight, will t not affect my fund NAV? I dont know exactly how it works for overnight funds but I would think logically that it should and that one thing I know for sure is that in finance, debt, corporate debt or anything to do with corporates - busting, default and fraud are a sureity sooner or later. In case of equity, I can research and invest in that one ethical firm but I cannot control where my debt fund puts money for generating that one extra percent returns to top the charts of AMCs. Thanks

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Hi @Investor_No_1,

I actually have a question here (which I also asked elsewhere), which is exactly about the composition/portfolio of overnight funds. The reason for asking this question is that one cannot know how risky a fund is unless you know what is in it. You can look at it if you want. Understanding overnight fund portfolios

It has one answer, which I should reply to, but which I did not find enlightening.

As far as I can tell, overnight funds are in their own special category. They don’t invest in instruments like bonds for the most part. But I am currently still unclear about the details. I’ve asked on a couple of forums and written to a number of people about this, but no clear replies yet.

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I just noticed that Cipla’s P/E seems to have jumped by a few points for about the same share price. I thought earnings were about the same, maybe very slightly better (1%). But did the earnings actually get worse? I can try to calculate this, but I don’t know if I will get it right.

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I also feel that the jump in the Lupin, Cipla, Granules, Suven etc in this sector has created a bit of TOO much optimism and hence I am lightening my portfolio for some of these stocks. Leaving DRL and a bit of Granules in my portfolio, and of course, Sun Pharma. So, I would say do not buy here, and sell some in SIP mode to gain the maximum average selling price.

KKP

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Does anyone have any idea why the Cipla share price dropped about 25.7 Rupees today? Around 4%. As far as I know, all recent news has been good. Am I missing anything?

And I was considering whether it would be a good idea to create a separate thread for Cipla. As far as I know, one does not exist. Perhaps because a company like Cipla is not of much interest in a value trading forum, since it’s not a very active stock. At least during the timeline of this forum.

However, I see that most people who start threads about companies here typically lead off with a detailed analysis of the company’s strategy. I’m not sure I’m capable of doing adequate justice to the topic, though I am willing to try if nobody else is interested. And if so, title suggestions are welcome. I’m not sure what title to use, or what category to put it in.

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The price movement was based on market volatility : The news was published at 13:00…
Since am actively following the stock - i got to nibble some qty… Tomorrow we might see wind sailing ship due to news.

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Hi @nithin_Shenoy,

Sorry, I didn’t understand most of your message. It sounds like you are using shorthand, and I am new to this, so please spell it out.

By market volatility, do you mean this price has nothing to do with Cipla per se? It’s still an alarmingly large drop.

What news was published at 13.00? And on which day?

What do you mean by “got to nibble some qty”? Do you mean you bought some Cipla shares?

What does “wind sailing ship due to news” mean?

Finally, do you have opinions about creating a separate dedicated thread for Cipla?