Do anyone have any inputs on Bajaj Hindustan Sugar Ltd. ? Was the recent run backed by some developments (a month or so ago). Basis technical it was looking promising some time ago! Would be good to hear out on thesis/ antithesis pointers if anyone is tracking or had studied lately.

Hydrogen business is under Belgian parent company, sadly won’t impact the listed India subsidiary

Supriya Lifesciences –

Q2 FY 24 and company Highlights –

Revenues – 140 vs 112 cr
EBITDA – 32 vs 29 cr ( margins @ 23 vs 25 pc )
PAT – 24 vs 17 cr ( due lower tax outgo )

Geography wise sales breakup –

Asia – 35 pc
Europe – 44 pc
LATAM – 13 pc
North America – 4 pc
Others – 4 pc

Therapy wise sales breakup –

Analgesics/Anesthetics – 50 pc
Anti Histamines – 13 pc
Vitamins – 12 pc
Anti Asthmatics – 7 pc
Anti Allergics – 6 pc
Anti Malarials – 2 pc

Company produces a Niche product basket of 38 APIs. Exports them to 85+ countries

Company is the largest Indian exporter of 3 key APIs –

Chorpeniramine Maleate – Anti Histamine, used to relieve symptoms of allergy, fever

Ketamine Hydrochloride – An Anaesthetic

Salbutamol Sulphate – Used to treat Asthma, respiratory blockages etc

15 of company’s products are backward integrated and represent 72 pc of company’s revenues

Share of top 10 customers out of the total revenues – 45 pc

Company maintains 04 different manufacturing blocks – separated therapy wise. Land already acquired for future expansion

Total reactor capacity at 600 KL. Current capacity utilisation at 70 pc

Company’s facilities are recognised by key regulators – US FDA, PMDA, ANVISA etc

Company has already filed for 15 additional APIs with USFDA. This shall take care of company’s future growth prospects

Last 5 yrs –

Revenue CAGR – 13 pc
PAT CAGR – 18 pc
Leverage @ 0.03 pc

Company’s R&D centers at Lote Parshuram, Ambernath are involved in identifying APIs that will complement company’s current product profile. These centers are also engaged in lifecycle management and backward integration of existing products

Additional work is underway to set up 5th manufacturing block at Lone Parshuram which will have the capacity of 340 KL !!! Likely to be operational by Q4, FY 24

An additional manufacturing facility of 90 KL with a new R&D facility at Ambernath shall also come up by Q4, FY 24

All this will take company’s total manufacturing capacity to > 900 KL

Q2, FY 24 Concall highlights –

Company expects to generate a topline growth of 20 pc over the base of last FY ( that would mean, sales touching the 550 cr mark by end of FY 24 )

Tax rate for full FY to be around 26 pc

Company is practically debt free

Lower margins in Q2 due change in product / geography mix ( basically greater sales in semi-regulated and emerging markets )

Aim to maintain 28-30 pc EBITDA margins for full FY 24

Sales mix –

Exports : domestic – 81:19 pc
Regulated : semi-regulated – 46:54 pc

Most of the sales growth in Q2 attributed to volume growth

Generally, H2 is better than H1 for the company

In H1 … outside the top 4 products, the next 8-9 of company’s products did see a lot of traction in semi regulated markets and hence the strong volume growth

New products where the company is focussing are in the therapy areas of – cardiovascular, anti-diabetic and anti-anxiety products

Don’t expect any incremental volume growth from China business for next 2-3 yrs

Company is co-developing 02 revolutionary products with Kalinga university – oral cancer detection kit, fast wound healing gel. Both these are novel products and have already been developed at – lab scale. Expect Supriya to take them commercial inside 3 odd yrs. These can generate significant revenues for the company ( > 500 cr ). Company intends to manufacture them and out license them to global Pharma Majors

LATAM countries are aggressively pursuing procurement from countries other than China. This is likely to act as a huge tailwind for the company Management reiterated the same on multiple occasions

Expecting to grow revenues at rates > 20 pc for next 2 yrs as well

Disc: initiated a small tracking position, not SEBI registered, biased, not a buy/sell recommendation

The advent of electric cars has prompted Maruti to reassess its strategies, with a growing emphasis on sustainable and eco-friendly vehicles. As the automotive landscape evolves, Maruti, like many others, is navigating this shift. For more in-depth analysis, consider insights from industry experts like Marc Bendall.

Valuation, the mystery:
I have always found it (still does) to understand how much valuation a co. deserves. Even though I believe P/E is not always true measure of valuation of any co, I’ll consider P/E based on normalized earnings to the measure in the current write up.

Question to the reader:
Please try to answer these Qs for yourself to follow the post better. Here for the answer for any Q needs to be normalized P/E in a band (20x-30x P/E band)

1. Let’s say there’s a co that grows at 10-11% CAGR with decent stability in margin and growth. How much P/E does it deserve ?
2. Let’s say there’s a co that grows at 10-11% CAGR with decent stability in margin and growth. But always lags the industry growth. How much P/E does it deserve ?
3. Let’s say there’s a co that grows at 10-11% CAGR with decent stability in margin and growth. In addition to be this it distributes 4% yield (buyback and dividend included. )But always lags the industry growth. How much P/E does it deserve ?

The I was referring to is wipro ltd. It has traded in a P/E band of 17.5x to 33x during the cycle of the industry.

My personal view: The P/E of 33x is insane for this co and P/E of 17-18x is fair (not cheap). However, there might be few reasons why it trades as 2-2.5x PEG (more in upcycle).

1. Stable and predictable cashflows
2. Large cap co with proven track record of 3 decades
3. Consistent distribution of wealth to shareholders in terms of Dividend and buyback

Question to the reader:

1. Let’s say there’s a co that grows at 20-25% CAGR with decent stability in margin and growth. How much P/E does it deserve ?
2. Let’s say there’s a co that grows at 20-25% CAGR with decent stability in margin and growth. Also leader in the industry in terms of growth. How much P/E does it deserve ?
3. Let’s say there’s a co that grows at 20-25% CAGR with decent stability in margin and growth. In addition to be this it distributes 3% yield (buyback and dividend included. ) and leads the industry growth. How much P/E does it deserve ?

Should the P/E band be definitely higher than the first co on normalized earnings basis??

The I was referring to is angel one. It has traded in a P/E band of 11x to 36x during last 3 years.

My Personal view: For a co growing at 20-25% CAGR (Inf act Angel one grew faster) 36x P/E may Not fairly valued. Not expensive either. But this co has traded at 11x to 36x P/E band for whether it’s right or not. The reason could be why this co trades at 0.5-1.5x PEG

1. Broking industry (at least the incumbents) has always been cyclical
   I can’t find many reasons for this undervaluation in this co. But at 10.5x P/E it’s criminal undervaluation for a co growing consistently. The optoinalities are a bonus.

Why did ANGELONE trade at 10.5x P/E at bottom and Wipro trade at 17x P/E. The reasons I’ve mentioned earlier could be part of the answer. But it can’t explain the whole thing. 10.5x P/E is surpirising under valuation but Mr. market decides what’s correct and what’s not. We make better money by predicting what Mr. Market thinks or how Mr. Market has behaved in the past

A stock or co could be undervalued/ over valued by just looking at the numbers ( before I revealed the name of the co). There is higher chances for us to go wrong when we do this.

The solution ?

1. Looking at the historical valuation band. It works well for established players. But not necessarily for the cos with very short history (Would have helped with WIPRO Ltd)
2. Consider all the available details in hand and decide for your self how much valuation a co deserves (would’ve helped with ANGELONE)

Solution 2 is difficult for new entrant in the market (like me). But sometimes we know we can’t be absurdly wrong at a particular price
Solution 1 could be a solution for some cos. But derating is a bth. Investor could’ve gone absurdly wrong by following solution 1 and invested in Coffee Can kind of stock in last 5 years.

Will try to write a follow up of this post, If I find good hypothesis/idea worth writing down for my self and fellow VPers.

Thanks for reading through

Praveen

Disc: Hold both the mentioned cos (although the weight of Wipro Ltd in insignificant for a reason)