Thanks for wonderfull writeup.

advait,

The pharma market in India is highly fragmented. Most of the companies we discuss have a presence in most of the lifestyle segments. e.g Lupin, Torrent pharma, ajanta, sun, u name it and most of them have good presence in life style segments. But as you can make out companies having only domestic presence will have a tough time due to intense competition.

The most attractive facet of pharma companies from India are their US revenues and profits. Among these one has to look at companies with presence in niche segments/complex molecules etc where competition is likely to be low.

The important criteria for listing down US facing pharma companies are:

Pipeline of filings/approvals.
Existing base business and how good that is.
Track record of company with regulatory authority (USFDA)
Management smarts — how well does the company utilise the opportunity available.

And one has to bear in mind the fact that with companies deriving major part of their revenues from US, two main risks are those of USFDA regulatory risk and currency risk. (Small 1-2 rupee moves in currency dont matter much but a big swing of 10% or more would materially impact quantum of profits)

Ideal company could be a company which has a stable business model which gives it predictability and which is just climbing the ladder in the US. e.g Ajanta. But there again one has to be comfortable with valuations bcos very few pharma companies are available cheap now.

And if one is not too clear about the whole thing then it makes sense to buy a basket of pharma stocks and hope for the best.

Dear Hiteshbhai,

Request your help and views to identify some pharma companies based on certain themes. For ex. Lifestyle diseases like Heart trouble, Asthma, High BP and Diabetes are on a rise in our country. Wish to know a few companies who are leaders in these segments. I tried to search, but cannot move in the right direction. My limited knowledge and search provides info like – (a) Cipla is the world leader in Asthama & Respiratory medicine; (b) Granules India is one of the largest manufacturer of Metformin (and increasing its capacity) which is used in Diabetes.

Can you pls share your views on companies who are leaders / have significant business from any of the above areas mentioned. Pls also let me know in case of any other therapeutic area / stream (and companies in that stream) that you may feel more important or fast growing other that the above mentioned areas.

Thanks a lot !
-Advait.

@ Hitesh…..Yes…TGBL holds 50% stake in Tata Starbucks.Basically it is a 50:50 JV.
However it is not yet profitable….due to high initial start up costs of their stores and high rentals.
However if we do a back of the hand calculation…..say avg store rentals at Rs 4 lakh/month= Rs 48 Lakh per year. Avg raw material cost at say 50 lakh/year ( considering GPM of 80% on food) and avg employee and other misc costs at Rs 5 lakh per month= Rs 60 Lakh per year.
That makes it a total cost of Rs 1.6 cr per store per year.
Against a sale of 2.5-2.6 cr year per store…..Each store can give a profit of Rs 1cr/year.
If the business is scaled upto say 300 stores in next 3-4 yrs, the bottomline can be in the range of 300cr. TGBL’s share= Rs 150 cr.

That ways we have a equivalent of Jubilant Foodworks owned by TGBL…..which is valued at 9000cr….more than whole of TGBL currently.
INTERESTING!!!!

Hi Pratik,

What is your opinion about the company’s quarterly performance? Their financial performance, except the margin improvement, was largely driven by addition to gross block.