PN Vijay has a mixed a track record as a stock picker. On the one hand, he delivered the mind-blowing Kajaria Ceramics, which has given a 400% gain and is looking good for more gains. On the other hand, he delivered a total dud in the form of Zylog Systems, which robbed investors of their precious wealth.
However, that’s the nature of the game. Sometimes you win, sometimes you lose. You must take it in your stride.
PN Vijay is now back with two top-quality stock recommendations. Let’s pay attention to them:
PN Vijay’s first pick is Natco Pharma, a mid-cap company with a market capitalisation of Rs. 3700 crore. It is engaged in manufacturing Active Pharmaceutical Ingredients (API) and formulations. It has a strong presence in the oncology segment. About 50% of its turnover is exported to North and South Americas, Europe, Middle East and S-E Asia.
Natco Pharma boasts of a blue-chip investor profile. Dilip S. Shanghvi, the promoter of the behemoth Sun Pharma holds a massive chunk of 11,50,000 shares.
Natco Pharma is doing quite well financially. In Q1FY15, it reported a strong set of numbers with total revenue of Rs.182.36 Cr as against Rs.148.32 Cr during the same quarter last year, up 26% YoY and 12.13% QoQ. EBITDA at Rs.61.44 Cr increased 26.44% YoY from Rs.48.59 Cr in Q1FY14. PAT robustly grew to Rs.36.41 Cr, as against Rs.22.74 Cr same quarter last year reflecting a 54% jump. The growth was driven by increase in sales of both bulk chemicals and formulations. Operating Profit Margin (OPM) of 33.85% and Net Profit Margin (NPM) of 20.06% were significantly stronger than last quarter’s OPM & NPM of 30.04% and 17.19% respectively. In FY 13-14, the Total Income amounted to Rs 622 Cr and EBIDTA to Rs 160 Cr and the Net Profit to Rs 110 Cr.
PN Vijay has given four reasons why in his view Natco Pharma is a winner stock:
(1) Natco is the largest oncology generic player in India;
(2) It is focusing on key high value complex drugs and has been successful in getting the regulatory filings done in US.
(3) It has product based tie-ups for taking the product to different markets with all generic majors in the world. Thus the risk of litigation and costs are mitigated. It mostly works on profit sharing model.
(4) It is a R&D focused company with good scientists working with them. Also, It has a low attrition.
In terms of valuations, PN Vijay points out that Natco Pharma is trading at a P/E of 33xFY14 & 27xFY16. This is not expensive if you consider the Quarterly EPS of Rs.10.12, which shows robust growth from Rs.7.26 last quarter and Rs.6.94 same quarter last year. Natco is expected to continue to grow at a CAGR of 30% + for the next several years, PN Vijay says.
PN Vijay’s second pick is National Buildings Construction Corporation Ltd (NBCC), the PSU Navratna.
NBCC is also a mid-cap company with a market capitalisation of Rs. 5,300 Cr. As the same suggests, NBCC is an infrastructure and construction company, engaged in project management consultancy (PMC), real estate development and EPC contracting. It has executed a wide array of projects ranging from roads, hospitals, offices, to residential and commercial projects and currently it is working on many projects from central and state ministries.
What PN Vijay likes about NBCC is the fact that it has been showing consistent healthy growth. It has a strong balance sheet and is totally debt free with a cash balance of over Rs 15000 million. This is very unusual for a Real Estate development and construction company, Vijay emphasizes.
PN Vijay also points out that NBCC has a strong order book of Rs. 130bn as on March 2013. It is also looking for overseas opportunities in countries like Oman, Botswana and neighboring countries and is also opening office branches in Botswana and Oman. It also has business tie up with a company in Oman for development of an infrastructure project.
In terms of valuations, PN Vijay explains that NBCC ended FY 14 with an EPS of Rs 21 out of which nearly Rs 9 came in the last quarter. For FY15, he estimates the EPS to be of the order of Rs 30 to 32. Hence the share is trading at a PE of 20 on past earnings and PE of 13 to 14 on current earnings, which is quite attractive, he says.
Incidentally, NBCC was also recommended by Ramesh Damani recently, together with three other stocks. So, you know you are in good company if you choose NBCC.