I will give an example from each category of business, I cannot give my projections for all the companies I track because that would be >100 posts!
High quality business + High quality management + non-cyclical + 19% expected growth rate + moderate confidence in projections
Ajanta Pharma
Business quality (HIGH)
| Year | ROCE & ROE > 20% | Positive FCF | |||
|---|---|---|---|---|---|
| FY10 | No | Yes | Total # years | 12 | |
| FY11 | No | Yes | # ROCE & ROE > 20% | 8 | |
| FY12 | Yes | Yes | # Positive FCF | 12 | |
| FY13 | Yes | Yes | |||
| FY14 | Yes | Yes | SUM | 20 | |
| FY15 | Yes | Yes | AVERAGE | 83.33% | |
| FY16 | Yes | Yes | HIGH BUSINESS QUALITY | Yes | |
| FY17 | Yes | Yes | |||
| FY18 | Yes | Yes | |||
| FY19 | No | Yes | |||
| FY20 | No | Yes | |||
| FY21 | Yes | Yes |
Management quality (HIGH)
- Organic sales growth greater than category level growth: True for IPM
- Able to find new avenues to grow: Created new sources of cashflows regularly (malarial tender business, US generics, Franco Africa branded generics, etc.)
- Treats minority shareholders in a fair manner: Conservative guidance + 20% payout + regular buybacks
Financial projections and exit valuations as on 05-03-2021
FY20 sales: 2588 cr., @15% growth: FY25 sales: 5176 cr., EV: 5176*6 ~ 31’056 cr. (20% net margins in good times with operating leverage benefits + 30 P/E) (share price: 3588)
Cyclical?: Branded pharma is not cyclical
Confidence in projection (Medium)
- Business quality (high/medium/low): High (Specialty business gets high gross margins + branded focus in non-US markets)
- Promoter quality (high/medium/low): High (conservative guidance + didn’t pay dividend to fund capex + strongly believes in free cashflows)
- Financial projections (high/medium/low): Medium (unsure about 15% growth, sure about 20% net profit margins)
- Valuation projections (high/medium/low): Medium (unsure about exit P/E multiple of 30x; sure about 25x exit P/E)
- Is it a cyclical business (Yes/No)? No
SUMMARY:
| Companies | Projection date | Price | 4 years fwd Price (FY25) | Price return % | Dividend yield % | Total returns % | Confidence | Business | Promoter | Financial proj. | Valuation proj. | Cyclical? |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ajanta Pharmaceuticals Ltd. | 01.05.21 | 1’841.70 | 3’588.00 | 18.14% | 0.50% | 18.64% | High | High | Medium | Medium | No |
This comes in the 4% position size category (high quality business + high quality management + non-cyclical + ~19% expected IRR)