Prices of food colours, where both Dynamic and Vidhi operate have crashed significantly. More importantly, there are no signs of price stabilisation leave alone recovery. The buy sell decision is of course your own.
Discl: No holdings and no intention of buying.
Different opinion makes the market and a stock is cheap for some reason. Let me start with this.
I have some counterargument to the points you made.
US/Other Generic Business:
1. The talk of one time gain is over hyped in my view. After a windfall gain the prices will stabilize at much lower level(1-3% of the innovator's price as per management). The key is to have a good generic pipeline which seems to be a concern for market. However, management has clearly told that they will be filing 15-20 ANDA every year from FY17. So this will be taken care in due course.
2. The windfall gain can be used to clear 2400cr. debt or acquire another company/brands which will go very well for company's earnings.
3. Management is on records that they will have the US business at $500million by 2020. This is more than 4 times of FY15 US sales.
4. Their Brazil and Europe(Germany, UK primarily) will also stabilize in due course which is facing currency issues.
5. The new facility at Dahej will take care of the growing export needs.
Domestic Business
1. This also is expected to grow around 15% compounded for next few years. The acquisition of brands from elder is really helping the company and two of them are in 100cr+ sales league.
Overall, I feel Torrent will do very well for next 4-5 years and market men will jump only when the earning consistency fear goes off.
Disc: Invested with more than 10% of portfolio.
If a discussion already exists in Company Q&A or Stocks Opportunity, join that discussion, and feel free to ask a question, and/or point to some data-point/event, as usual.
If no discussion exists on your company and you have something to just say/ask, go ahead and post on the lines of say, the Dynemic Products thread (as an example), in the Company Q&A section
Dynemic Products is a manufacturer and exporter of complete range of Food Colors, Lake Colors, Blended Colors, FD&C Colors & Dye Intermediates. Listed peer Vidhi Dyestuff is valued quiet highly whereas this company is valued much lower (PE of 16 to 6). Products of this company are better than Vidhi. Other parameters-wise also Dynemic is better.
Couple of issues. Management last year cancelled split and this year skipped dividend.
I believe it should not trade at such a discount. Anyone has any dope on this ?
Disc : Invested at CMP.
I don't even come remotely close to being an expert on Pharma but IMHO Torrent Pharma is not cheap.
Let me quote Graham's advise on EPS:
"Don't take a single year's earnings seriously. The second is: if you do pay attention to short-term earnings, look out for booby traps in the per-share earnings figures".
TTM EPS for Torrent is 73.
Given the blockbuster sales of abilify and nexium and problem for competitors, we can annualise half year EPS for FY16 - which comes to upwards of 110.
That makes the stock look cheap on P/E metric.
But question we have to ask is is this earnings sustainable? Based on my limited understanding, it might not be. So if we aggressively assume 30% EPS growth rate for FY15 earnings, sustainable EPS might comes to 55 (FY16), 72 (FY17), 93 (FY18).
Assuming 20 P/E ratio for FY17 earnings, stock has fully priced that in.
So one can say only an enterprising investor who has intricate understanding of the Torrent business can invest at these levels.
Disc: Invested at current levels, 3% of portfolio, not looking to add more unless something changes significantly
Yes ester does seem to defy valuations.
Best net profit figures in last ten years as per screener data is 129 crores in 2011. Based on that also its at around 6-7 times.
And last 3 quarters is nothing to write home about. But thats how cyclicals typically behave. From extreme pessimism to extreme optimism.
I think its the macros thats pulling the scrip down and it makes us to go shopping on this discount
spree
Guys, Ajanta pharma has fallen from a high of 1720 to 1260 .
This is not a normal correction.
Is there something that we are missing out there.
Hi Hitesh,
I was looking for 52 week highs and this one stands out - Ester Industries. Share has risen with high volumes. What puzzles me though is the valuations, which don't make any sense at all. Market cap of Rs 840 crore vs 1H2016 Net profit of Rs 7.81 crore.
Considering this, is it a good time to look at the sector that includes Jindal Polyfilms? (available at PE of just 10 times). Chart below:
Disclosure: Invested in Ester Industries
One easy way to figure out the sector to bet on is to look for stocks/sectors where new 52 week or preferably all time highs are made esp during bear markets and due to the bear market stocks correct and are consolidating at some level.
Few stocks that come to mind are kabra extrusion (all time high), praj inds (52 week high), good luck steels (all time high) , Jagran (made a new 52 week high today amidst correction), etc. All these stocks made their respective all time or 52 weeks highs and are now consolidating near to their support levels. One of the important support levels in case of stocks which have taken out their earlier all time highs (or usually multi year highs) is in the vicinity of the earlier highs. e.g Kabra extrusion is a stock which had posted its all time high of 103.40 in 2010 underwent sharp correction and after many years broke past the level of 103.40 and posted a new high of 119 in Sep 2015. Now stock has started cosolidating closer to its 50 day moving avg. On panic days it might try to get support at around its 200 day moving avg. These are classical supports described. There could be other ways to detect support levels like retracement levels etc but those would be too complicated. To me what this chart is trying to tell me is that after many years there is likely to be a change in the fortunes of this company for the better. (how it pans out needs to be seen but this could be an example which could be observed and something can be learned out of it.)
I read this philosophy in two books ... one in Basant Maheshwari's The Thoughtful Investor and other in Ivanov's The Next Apple.
This should not be construed as any recommendation but as a tool to try and find out possible winners.
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