Over the past couple of years (even more in some cases) pharma companies have outperformed a strong market. If you notice it is not just Ajanta, but a whole host of names from the sector that have corrected significantly from their peaks.

This has more to do with the fact that FIIs/ funds/ HNIs are looking to take some of their profits off the table, which is but natural. These investors as others would have made significant returns over these past couple of years in a lot of these names and are now looking to lock in some of their gains –

Why now? In my opinion its because a lot of these names have gone from being undervalued to being fairly and in some cases over valued. This would mean that they may not be able to provide out-sized returns at least in the short to medium term.

If as an investor you have a long term view of the business/ industry I don’t think these corrections are anything to worry about. Whether or not this provides a buying opportunity though is very stock specific and is dependent on your understanding of the future potential of the business.

Personally, I would not blindly go out and buy the names that are falling – we tend to do that more out of a price anchoring bias.

Buy if you truly understand the business and its growth path and believe that the current price does not completely reflect current or future value.

Disc: Pharma companies > 60% of my PF

@rapidriser Could you please share the source of information? Where can I check prevalent prices of food colours?

@rupeshtatiya

An important thing to notice , the improved margins @ 21% has been sustained for last 2 qtrs. Compare this against the usual margin of 16%. And this is an improvement by qualitative factors in the business. Hence, naturally one can assume that this margin can be sustained going forward. I think 2 qtrs give a certain level of confidence and being in pharma – a stable and defensive business. Based on these assumptions, my forecast for FY 16 profit is Rs 1284 cr which gives an EPS of 76. Rs 964 already achieved. Torrent can fall in the coming qtrs as traditionally profits are low in these qtrs. which gives an oppurtunity to add more. Hence your figure of 55 seem to be on the lower side. They need to make Rs160 cr each qtr to achieve my forecast of Rs 1284 cr.

Rgds

Discl: Invested

Different opinion makes the market and a stock is cheap for some reason. Let me start with this.
I have some counterargument to the points you made.

US/Other Generic Business:
1. The talk of one time gain is over hyped in my view. After a windfall gain the prices will stabilize at much lower level(1-3% of the innovator’s price as per management). The key is to have a good generic pipeline which seems to be a concern for market. However, management has clearly told that they will be filing 15-20 ANDA every year from FY17. So this will be taken care in due course.
2. The windfall gain can be used to clear 2400cr. debt or acquire another company/brands which will go very well for company’s earnings.
3. Management is on records that they will have the US business at $500million by 2020. This is more than 4 times of FY15 US sales.
4. Their Brazil and Europe(Germany, UK primarily) will also stabilize in due course which is facing currency issues.
5. The new facility at Dahej will take care of the growing export needs.

Domestic Business
1. This also is expected to grow around 15% compounded for next few years. The acquisition of brands from elder is really helping the company and two of them are in 100cr+ sales league.

Overall, I feel Torrent will do very well for next 4-5 years and market men will jump only when the earning consistency fear goes off.

Disc: Invested with more than 10% of portfolio.