Positives:
The company is maintaining its high-profit margins continuously. Very low debt with a lot of cash on the balance sheet. the management is conservative when it comes to funding growth through debt.
The company pays good dividends. The receivable days are going down, the inventory turnover is getting higher.
Management is of high repute. There are no red flags. They have done a lot of philanthropy in the area where the factory is.
Promoters bought recently (Dec’22 to Mar’23, 45.96% to 47.56%)
The PE, at 13.5, looks decently valued.
Great ROCE and ROE nos. The company is not that capital intensive (basis their CAPEX)
83% of the company’s revenues are from India and the rest through exports. I understand from https://www.youtube.com/watch?v=-Z1NNJ7x9O8&ab_channel=OmkaraPathshala that in the Pharma sector, the companies whose majority of revenues are domestic have a higher ROCE and better-working capital parameters. Hence this is considered a positive.
Negatives:
As investors have pointed out earlier, MD remuneration continues to be high (~10% of PAT) which seems to be high as per SEBI regulations. The usual range of promoter salary is 2-5% of PAT.
The % of employee costs to that of sales is also high.
The company is not able to convert all its profits into cash. The cumulative PAT for 10 years is ~157 crores but the cumulative CFO is ~128 crores. The difference of 29 crores in which the working capital struck is around 13 crores.
Though the earnings yield (11.8%) is higher than FD, the actual earnings growth has been slow. |
The company is most popular in the western, central regions of India and not pan India.
Jenburkt’s domestic product portfolio is predominantly acute medicines and not chronic medicines. And these acute medicines will have seasonal variations, unlike chronic portfolio products. This is one of the reasons for the cyclicality of the prices.
There is a consistent line item “Purchase of Stock-in-Trade” under “Expenses” in the P&L statement. This amounts to ~21 crores every year. Given the company’s PAT is ~25 crore, this is a significant amount. “Purchase of Stock-in-Trade” usually means that the company is directly purchasing finished goods from somewhere else and then selling them. Since 21 crore is a significant amount, if we can know why the company is doing this instead of producing the same stocks on its own (this will impact profitability), it would be useful. The annual reports (Note 29) do not reveal any information. The company does not organize con calls also. And since the company keeps debts under its control and has a lot of cash sitting in the bank, it does not need a credit rating. Hence there is no credit rating report as well to get further information.
Verdict:
- The sales growth is modest. Looks like a medium grower (“Stalwarts” as per Peter Lynch, if stock hits 50% in 2 years, then SELL) with decent dividend payouts.
- The company looks like a safe investment with limited downside, thanks to conservative management who are efficient capital allocators.
Subscribe To Our Free Newsletter |