Value Investment Stocks

I modifying my previous post to present quality stocks for retail investors. I will be elaborating on the merits of these stocks and also present new stocks.

Exide industries
SBI
PFC
GE Shipping
Selan Exploration
Cyient
Tata Global Beverages
City Union Bank
Tech Mahindra
Ramco Cements
Orient Cement
BHEL
Engineers India
Karnataka Bank
Lupin
Panasonic Energy Company
Infosys

 

Lupin

Positives

Company has made 7 acquisitions in the last year including a US pharma company Gavis which gives it access to its first manufacturing site in US.

The results of the company were very good. It showed strong growth in all segments and across all geographies.

The Company filed 36 ANDA (Abbreviated New Drug Application) and received 39 approvals during FY2016. At the end of the year ANDA filings with the US FDA stood at 343 with the company having received 180 approvals to date. The Company now has 45 First-to-Files (FTF) filings including 35 exclusive FTF opportunities. New filings in the European market now stand at 67 with the company having received 52 approvals to date.Hence the company is likely to introduce several new drugs in the US and EU market and many of them will be protected by exclusivity laws. The India business is also doing very well and grew by 14 % and the Japan business grew by 17%. There is great revenue visibility for the company. It has a strong presence in all the major markets of the world.

The company reached revenues of $ 2 billion and has projected a target of $ 3.5 billion by 2018. Though this is now a reduced target from earlier levels it is still ambitious. If the company can achieve this guidance it will mean a 75% revenue increase which works out to more than 30% CAGR in revenues.

The company has earmarked 12.5% of sales for RD costs. This shows the company is serious to develop new products. This may impact profitability in the short term but will ensure that the company can develop and market new drugs especially in the highly competitive and lucrative US market.

The company trades around 28 times FY16 earnings. Given the possibility of almost 30% revenue growth in the next 2 years this is very reasonable.

Depreciation in INR will only add to the revenues of the company.

Negatives

The company has received a form 483 for the Goa facility with 9 observations. The Goa plant is crucial as it accounts for almost 50% of sales to US markets. The management has said that they have responded to USFDA though it is not clear when the final decision on this will emerge. However the company has said that observations were related to standard operating procedures. Other analysts also conclude that observations were not very critical and the company should be able to resolve them. Given the importance of the Goa plant and the prompt response of the company it is expected that the company will work seriously to resolve the issue. However time frame is not clear.

The debt of the company increased by $500 million following the Gavi approval but it is likely to aid revenues substantially and also protect against any adverse decisions made by US authorities regarding manufacturing guidelines for drugs sold in US markets.

Disclaimer: Lupin is a part of my portfolio and I intend to hold it for the next 5 years.

 

Sensible decision because Lupin is blue chip with excellent management.