Parag Parikh, the veteran value investor, is known to keep a keen eye for value picks. He especially likes companies with strong fundamentals and good management but whose valuations are low owing to temporary problems.
The fact that PPFAS Mutual Fund recently bought a chunk of 84,644 shares for about Rs. 5.79 crore is a clear indication that the veteran investor sees value in IPCA Labs.
Earlier, IPCA has met with support from Sanjoy Bhattacharyya and Saurabh Mukherjea. Both stalwarts have come out strongly in favour of the beleaguered company on the basis that it offers “deep value”.
The same sentiments are echoed by Mayuresh Joshi and Sarabjit Kaur Nangra of Angel Broking. While Mayuresh said that “valuations are seriously very attractive for Ipca Labs”, Sarabjit said that the “valuations for a company which is capable of churning out net profit of Rs 100 crore per quarter is decent”. Angel Broking has also issued a research report recommending a buy with a price target of Rs. 817.
Arvind Bothra of Religare also expressed optimism on the basis that the valuations factored in a “worst case scenario”.
Anmol Ganjoo of JM Financial chipped in by saying that IPCA Labs is a “strong conviction buy” and that it would walk through the FDA teething troubles. He added that IPCA has “great management” and is a good allocator of capital.
Motilal Oswal also says the same thing and calls the present crises a “small bump in a structural story”.
However, an opposite opinion was expressed by Credit Suisse which shocked everyone by downgrading the stock to “under-perform” from “neutral”. The stock plunged 15% (closed 10% down) after the downgrade though it has now recovered lost ground.
ICICI-Direct is also lukewarm to the stock and has put it on “Hold with downward revision”.
Meeta Shetty of HDFC Sec appears to have changed her mind. She had earlier recommended a buy on the basis that “confidence is building up”. Now she has advised a “neutral” stance on the basis that there are “concerns ahead”.
It is a difficult situation for us to be in given the difference of opinion amongst the experts.
IPCA will face regulatory headwinds for quite some time. Opportunity cost will be very high. Folks who are calling valuations attractive are only looking at the downside but loss due to opportunity cost is as real as the “actual loss”. There is a further delay of 2-3 month in their feedback to USFDA. Timeline will shift from January’15 to March-Apr’15 now. Then after this communication USFDA will take another 6 months for re-inspection and other followup. Final approval will come only in late 2015 ( based on timeline of other company) at the earliest. So for 12 months IPCA will hover at 650-750 range.
I also feel investing in IPCA right now is bad idea.