Daljeet Kohli’s Fav “100-Bagger” Mid-Cap Pharma Stock Is “Ripe For Re-Rating” & Is Back In The Buy Zone

Daljeet Kohli has enjoyed great success with Pharma stocks. He is credited with being among the first to identify the potential of Ajanta Pharma and Alembic Pharma. While Ajanta Pharma blossomed into a magnificent 10-bagger, Alembic has also given mega gains. JB Chemicals, Aurobindo Pharma and Cadila Pharma are also testimony to Daljeet’s mastery in picking Pharma stocks.

Daljeet goofed up big time in recommending Sharon Bio-Medicine. However, circumstantial evidence suggests that Daljeet was himself the victim of unscrupulous machinations of Sharon’s management.

Daljeet was also the first spotter of Shilpa Medicare’s potential. In a report dated 24th March 2014 Daljeet recommended a “strong buy” on the basis that there are “multiple triggers ahead”.

Shilpa lived up to expectations and surged to a peak of Rs. 623 on 12.08.2015, giving a fabulous return of 260% since Daljeet’s recommendation (adjusted for split).

However, the steep surge in Shilpa’s stock price unnerved Daljeet and he put the stock on hold.

Now, thanks to the sharp correction in the market and some positive developments on the FDA front, Shilpa has come back to the buy zone.

Daljeet’s latest report provides succinct reasons for the re-recommendation of the stock:

“Good quarter; ripe for re‐rating on regulatory
clearance at API facility

Shilpa Medicare (SLPA IN) adjusted PAT was better‐than‐estimates led by better than expected y‐y sales growth for the quarter. On Y‐y basis, sales growth momentum is maintained with growth in onco‐API, non‐Onco API as well as
CRAMS segment. Recently, SLPA received letter of compliance from USFDA for its Raichur‐API facility. This event opens opportunity for business from US market. Given the scenario, where, business has been adversely impacted by regulatory hurdle for other pharma companies, letter of compliance is major positive for SLPA. Hence, we raise our PE multiple for SLPA from 16x to 18x. We now await clearance of regulatory hurdle at its Jadcherla formulation facility. We cut our EPS estimate for FY16E and FY17E by 20% and 19% to factor delay in getting regulatory clearance for its Raichur facility. We expect FY18 to have considerable business from API as well as formulation facility. We introduce FY18E estimates and roll forward our valuation to 18x FY18E EPS of Rs29. Accordingly, we raise our price target to Rs517 from Rs345 earlier. We upgrade SLPA from HOLD to BUY, based on potential upside of 28% from current levels.”

At this stage, we must note that Motilal Oswal has conferred upon Shilpa Medicare the title of a “potential 100-bagger” in their 19th Wealth Creation Study. The reason Shilpa was chosen is because it fits in well with the requisites of S (small), Q (quality business), G (growth), L (longevity) and P (price) that a stock has to possess if it aspires to be a 100-bagger.

It is also worth noting that Manish Bhandari of Vallum Capital is very bullish about Shilpa Medicare. He recommended the stock in Outlook Business 2015 and has given a detailed explanation why the stock deserves to be in the portfolio.

CA Rudramurthy BV of Vachana Investments is also gung-ho about Shilpa Medicare’s prospects. He recommended the stock on the basis that the sales for the last ten years have been growing at a CAGR of about 40 percent and the ROI and ROE are in excess of 30-35 percent. The stock is also reasonably valued at a trailing PE of around 30-35 times and a forward PE of about 25 times, he said.

Now, we have to wait and watch whether these confident predictions come true and if so by what time!