As you have pointed out, most of health portfolio growth is coming from corporate business which is actually not very difficult to grow (vs growth in retail). However, its still good to see their increasing growth trajectory.
When I had initiated my position in ICICI lombard, it had come down to 6x P/B which based on their past track record was on the lower side. At that time, my rationale was:
A key point of my post was they should maintain 20%+ ROEs for me to pay a premium multiple. After that, in one of the concalls Lombard management had clearly guided they will be investing excess profits to drive growth and wont be maintaining 20%+ ROE in the near to medium term. For a sub-20% ROE business, I was not willing to pay premium multiples especially at a time when HDFC bank was available at 3.5x multiple, and growing at 20%+ rates. I find that logic to be still valid.
When I exited ICICI Lombard, I shifted my money to Sundaram Finance as Sundaram was available at 2x P/B and CV upcycle was clearly visible in monthly nos of CV cos. Below was my rationale:
I find the above logic to be still valid. Since my exit in ICICI Lombard, their price has not done anything while Sundaram has moved up by close to 50%. Now the question is what to do now?
Valuations of Sundaram is still around its longer term means during a CV upcycle. So its fairly valued with potential growth, so I will continue to be invested in Sundaram rather than switching back to Lombard. Lets see how future pans out!
I bought my last chunk in July at 700 and prices are now further down by 20%. One lesson that I learnt from my investments in Lupin was that when things go bad in pharma cos, it takes a lot of time to get resolved.
In some ways, problems faced by Alembic are similar to that of Lupin. Both invested a lot in R&D and capex focused towards US market and then failed FDA inspections. I still have some hope for Alembic as they have failed on inspections towards injectables where they dont have past expertise, so in a way they are learning over time (or that’s what I want to believe). So if they can fix that, there’s a lot of operating leverage possible. Thats why I stay invested, also there is a cyclical recovery play whenever US generics market revive. One thing I like about Alembic is despite all their woes, 70%+ gross margins have been maintained. Lets see how future unfolds.
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