In July 2014, I reported about Daljeet Kohli being bullish on Sharon Bio-Medicine. Daljeet had recommended a “strong buy” on the premise that Sharon is poised for “very strong growth” going ahead which would lead to “doubling of profits” over the next couple of years.
To everyone’s pleasant surprise, the “conservative” target of Rs. 74 that Daljeet had set out for Sharon was achieved by it in a record 30 days, giving fabulous gains of 40%.
Now, enthused by Sharon’s performance, Daljeet has taken another close look at Sharon Bio-Medicine to decide whether more gains are in the offing.
In his latest research report, Daljeet has upped the target price to a “conservative” Rs. 140, which is a whopping 92% from the CMP of Rs. 73.
Daljeet has pointed out that Sharon’s change in revenue mix in favor of higher share of formulations has led to higher margins. He explains that if the company is able to just change the revenue mix in favor of formulations from the current 70:30 in terms of API: Formulation to 50: 50 by FY16 June, then the company has ability to more than double its bottom line over FY14 levels with just 20% CAGR top line growth & only 100 bps increase each year on EBITDA margin. He has also highlighted that these estimates are on the conservative side & have potential to be revised upwards.
Daljeet has struck a bullish note by emphasizing that “on a conservative note”, he has valued Sharon at 10x FY16E earnings to arrive at the target price of Rs 140 and that the company has “lot more potential to deliver”.