Ashish Dhawan leads a group of astute stock market analysts in ChrysCapital. ChrysCapital’s investments in India stand at about $2.5 Billion (INR 15k crore).
ChrysCapital’s recent purchase of a 3% stake in Torrent Pharma for a consideration of $40 Million (INR 252 crore) is a significant event that deserves to be noted because Torrent Pharma is quoting at reasonable valuations and offers a high dividend yield.
Torrent Pharma came into everybody’s radar when it reported strong Q2FY14 results. A flurry of new products together with strong growth in the US & European markets and domestic market meant that investors were very interested.
IIFL put Torrent Pharma on its’ Top 10 Mid-Cap Stock Ideas. SMC Global followed with their Best 10 Stocks. Even veteran value investor Sanjoy Bhattacharyya showed great confidence in Torrent Pharma by urging investors to buy it and also by putting in Ocean Dial’s “Gateway to India Fund” portfolio.
The best part is that at the CMP of Rs. 560 (after a 61% YOY gain), it is still not too late to grab the stock. The stock is quoting at a TTM PE of about 14 times and offers a dividend yield of 4.10%.
ChrysCapital’s earlier (March 2013) purchase of a $40 Million stake in IPCA Labs is also significant and has yielded huge gains. In an interview, Gulpreet Kohli, MD, ChrysCapital, made it clear that IPCA Labs was a great company because it has a very stable business and has been growing between 18 to 20 percent and will continue to do that. He added that IPCA’s return on capital employed is fantastic and that while one may not see massive growth, one can expect 18 to 20 percent growth over the next many years to come.
IPCA is still a great buy despite the 61% YOY gain. Motilal Oswal has recently (April 2014) released a research report in which it states that “We view IPCA as a structural growth story, with all business segments contributing to growth. We expect IPCA to report 30% EPS CAGR over FY14-16, led by international generics. We reiterate Buy, with a target price of INR 1,025 (16x FY16E EPS). IPCA is one of our preferred picks in the mid-cap healthcare space”.
Now, the one thing that is obvious is that you cannot afford to ignore these developments. If you don’t already have a nice holding in Pharma stocks, you need to take immediate corrective action.
Speaking for myself, I have a nice little chunk of money already invested in Sun Pharma, IPCA Labs & J. B. Chemicals. I have also started nibbling into Shilpa Medicare after reading Daljeet Kohli’s analysis that there is a 50% upside in the stock. I am looking to buy more of each on every dip.
If you are scouting for a Pharma stock, you can also consider Alembic Pharma and Ajantha Pharma, both of which have ambitious managements and have shown stellar performance in the recent past. JB Chemicals is another stock that you should keep in your radar.