Mid-cap Pharma stocks like Strides Arcolab, Shasun Pharma Natco Pharma etc will be multibaggers like Sun Pharma & Lupin:
The pharma space has been largely misunderstood by the market. It has not been a defensive play, it has been a massive growth play. If you look at the performance of stocks like Sun Pharma and Lupin over the last 10 years, they have been 20-baggers. That phase unlike midcap IT is only just getting started when I look at the midcap stocks within the pharma space whether it is Strides Arcolab, whether it is Shasun Pharma or Natco Pharma – all these stocks are going to be the next Lupin and Sun Pharma within the next 5-10 years. So, my view is focus on the midcap pharma space, not so much on the largecap because some of these largecaps are looking expensive but if you have a longer-term view I would buy them anyway.”
Natco is a great stock with huge potential:
We are bullish on Lupin. Within the midcap pharma space, we like Ipca Laboratories. We do not have coverage on Natco, but we see it as a great company. It has a Rs 50,000-crore potential products pipeline and multiple levers. So, it is a great story and it will continue to do well.
Kitex Garments can be the next Page Industries:
Kitex Garments is mid-sized company from the textile space. This is the world’s third largest manufacturer of infant wear. It caters to almost all the leading international brands. The company plans to launch its own brands. In addition, it plans to cater to the US market through an e-commerce channel which can be a game changer. The company has a pretty strong balance sheet. It has a high operating profit margins, high ROE and has done exceedingly well over the past two-three years and I believe that we could see impressive growth over the next few years. I am bullish on the stock and I feel my target in about a year’s time would be Rs 750. If you hold on to this stock for five years, then this stock can surely turn out to be a multibagger. I actually feel it could be another Page Industries in the making.
Greenply Industries – good balance sheet, low debt, high return ratios & huge opportunity:
Greenply is a leading manufacturer of plywood, MDF and decorative laminates. The company has a pretty strong distribution network of about 40 branches and 14,000 dealers across the country.
The company has also been doing exceedingly well and, going ahead, I feel there are several positive triggers for the stock.
The first being – the company had recently demerged its low margin and high working capital laminates business which would improve its already strong balance sheet. In addition, I feel that the implementation of GST would be a pretty positive trigger for the stock because it would reduce competition from the unorganised sector.
Finally, the government’s focus on the housing sector through its various schemes like ‘housing for all’ and its plans to build 100 smart cities would augur well for the company. So I see impressive growth from the company in the coming years. The company enjoys a pretty good balance sheet with pretty low debt and high return ratios. I am bullish on the stock and I feel we could see levels of Rs 1,300 on the stock in about a year.
Pharma stocks will be huge multi-baggers:
I am very believer in a pharmaceutical story and as I keep saying for years now that this is one story which you do not sell. This is a story where correction means a buy. I like companies with cash flows. I like companies with profits. I like companies focus on domestic markets.
When we look at the analysis of pharmaceutical industry and look projected forward, you cannot even imagine what we are looking at. We are looking at valuations in the next five to seven years which could be 10 to 12 times of what we are trading today.
JB Chemicals should be bought aggressively:
Lupin in the large cap space is a very safe stock to bank on. In the madcap space, we are aggressively buying JB Chemicals, it is available at 10 PE on one year forward earning,
As far as Wockhardt is concerned, one can wait for the re-inspection for US FDA. It is better to go after that because let us not forget the fact that in about a year’s time, the scrip has moved from Rs 340 level to this current levels. The price has already been multiplied by about four times. Therefore, it is better to wait for the inspection of the Chikalthana plant by US FDA before start accumulating the stock.
Lupin – consistent 20-25 percent earnings growth, high CAGR & high margins justifies valuations:
Lupin trades at fairly steep valuations, for good reasons though. This is a company that has been delivering consistent 20-25 percent earnings growth, compound annual growth rate (CAGR) and has been growing at very high basis. So, we expect the multiple to sustain. What you have seen in terms of recent price performance is predicated on the fact that because of first Ranbaxy and then Dr. Reddy’s withdrawing from the Nexium opportunity, they get an incremental upside on that. The point I was alluding to earlier in terms of some of the earning estimates posing upside risks, I think this is a classic case of that where our FY16 number for Lupin is around 62. However, if Nexium traction is good and you see significant market share, there is an easy 5-6 percent upside to this number. Also, with respect to Indore, that is completely a non-event because if we look at the 483 that has been issued, apparently from what has appeared in news print, there is no data integrity issue. There are two important events that have happened in that facility post the inspection. One is that you have actually had an approval which means that the view that FDI seems to have taken is that while there might be some things they want the company to correct and there is nothing serious. There is one particular product, the filing of which Lupin has been allowed site transfer. Both these events after the inspection mean that purely on a severity scale these are not material issues. The issue around 483 is pretty much par for the course for any pharma company. What raises alarm bell is when you have data integrity issues and the potential of an escalation to an import alert. The evidence thus far suggests that there is no reason to build such a case as far as Lupin’s Indore plant facility inspection is concerned.
Good time to buy IPCA Labs:
It is a good time to buy Ipca Laboratories on hopes of a resolution of its US FDA facilities. We have been saying this for a while and the stock has been building hope of a resolution. However, it is not that the resolution is going to happen tomorrow and they are going to start selling drugs into US fairly soon. However, point to note is that from a US exposure standpoint in absolute terms, Ipca has very low exposure. It is around 8-9 percent. That is not to say that US is not an incrementally important market going forward but the hit to absolute numbers from the US non-starting remains fairly low. Due to the problems in the Ratlam facility, there was negative operating leverage that had started developing and impacting numbers beyond the impact of the US. We think that is clearly behind the company. While US final resolution might still take some time, there are other drivers in the business that will start picking up steam and you have had other markets like the institutional business which have also suffered as a result of the collateral damage of Ratlam undergoing severe quality remediation measures. That is behind the company and therefore, from a number standpoint the last quarter was clearly the trough in my view and things should start improving from hereon.
Road infrastructure stocks will due well:
We are positive on road sector per se. Yesterday, there were rumours that NHAI is going to clear stuck up projects. It should be noted that there has been a clear focus on road sector. But, there are mere three stocks — IL&FS Transport, Ashoka Buildcon and IRB — which you can consider at current levels. IRB is good, but the only problem with the company is the fact that it does not have capital bandwidth The company is always hungry for capital. It will keep hitting market again and again to arrange funds. This would result in more equity dilution.
Thus, we will have to see how the forthcoming qualified institutional placement (QIP) goes and at what price. Also, one would evaluate how much that results into dilution. If somebody is taking a longer-term call, then probably IRB may qualify. As of today, we will prefer IL&FS Transport and Ashoka Buildcon over IRB.