Nifty Microcap 250, Weekly – Bullish engulfing candle on the week where LTCG and STCG were hiked. Despite all the rants on social media, the market has closed so strongly for the week to everyone’s disbelief. (I personally don’t think a 12.5% LTCG and 20% STCG is end of the world. I was paying ~35% tax incl surcharge and cess when I was briefly employed and to me personally, it feels fair. Its only my personal opinion and I am no expert, so lets please avoid debates in this thread)
I see skepticism on valuation and overheated market everywhere I turn. It appears almost contrarian to be bullish these days. I am not saying there’s lot of value. I am saying you can’t argue with liquidity (Bulk of 1.5 lakh Cr on the sidelines is chasing small/micros – so though as a % of overall equity AUM it might be low, it is still very, very potent in this space). Its fund managers playing defect card in prisoner’s dilemma. Everyone whining about valuation in public and buying in private and those actions are what’s reflected in the prices. Retail is of course selling but not staying out – invariably finding new bets to get back in.
RBI, SEBI, Finance Minister, CEA have all played their cards. Every raging bull market has had a blowout top when restrictive measures fail to restrict. RSI is around May ’23 levels (~70) when there was again lot of skepticism after Mar ’23 last week. moves until May. Once that was overcome, the chugging train kept chugging.
Nifty Pharma, Monthly – The most supportive sectoral index I see at this point for further runup is Pharma. This has been a relative underperformer and now might be the time it plays catchup. Lot of the other relatively underperforming sectors like IT, Banks and Chemicals have failed to deliver as all have headwinds in the macro environment (Banks with cost of funds and provisions and chemicals with China and IT with AI – all these 3 sectors are also very well setup technically but fuel for further moves is relatively less)
I have an aversion to generics focused pharma, so am looking only for differentiated bets with some moat. Personally I am heavy on pharma and healthcare already with Shaily, Wockhardt but added one more position recently
Orchid Pharma, Weekly – A breakout on the weekly after 6 month consolidation, post previous runup that came after the Investec report (one of the best on the company and worth a read).
Fundamentally, there are multiple things going on with the company
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The company is a ceph powerhouse with presence across all 6 generations of cephalosporins. They make the APIs at present for these but are getting into formulations as well in some products
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Cefepime+Enmetazobactam (Exblifep), the company’s NCE got approved by US FDA. Their partner Allecra is marketing it everywhere except China and India. Orchid has partnered with Cipla to market it in India and with Shanghai-Haini in China. They get royalties from all this and will also be manufacturing it for Allecra as a CMO – all this could bring in PBT of 150-200 Cr to the company. Taken from the recent B&K report
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Cefiderocol for LMIC countries – the company has partnered with GARDP/Shionogi to manufacture Cefiderocol which is a niche drug similar to WCK 5222/Avycaz
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They will also be selling generic Avycaz (Ceftazidime+Avibactam) and Ceftaroline with filings done in US
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There’s a merger planned with Dhanuka Labs which is a promoter owned entity in similar space which will be synergistic (And promoter shareholding with go up to 75%) which could happen in the next 1 year
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7-ACA capex will help in backward integration and will be a import-substitution/PLI play with good payback and is a good capital allocation decision. Over time this company will be a fully-integrated KSM + API + Formulation + Fixed dosages/Marketing player in the ceph space. The management is stellar in terms of execution.
Overall though valuation appears rich, there are lot of triggers lined up here and the company could grow profits at 40-50% CAGR over the next 2-3 years. For its capabilities, the < $1b valuation to me sounds reasonable – since most of the growth is in the future.
Disc: Positions from 800-1400. Though I bought initially a small position around 800 and added another small pos. around 1100, I didn’t have enough cash then to add more, so bulk of the buying at higher prices after selling Sharda. The tax implication of churn + possible good future justifying a 2-3 year hold + Nifty pharma relative strength, makes this a promising bet for me. despite its runup. I am not qualified to advise.
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