Feb’14 Alpha stock – A good Pharma company with great valuations
On 25th Feb’14 we released long/medium term investment recommendation for our Alpha and Alpha + members and would like to share with you details on the same especially if you like our research and our focus on high quality companies run by good management.
Our last recommendation from Pharmaceutical Industry was IPCA Laboratories in Nov’12 at Rs 445 and the stock has appreciated by 100% since then to current levels of 875-890.
Details on Feb’14 alpha recommendation
The company that has been chosen for Feb’14 recommendation is from Pharmaceutical space with ~1000 crores sales turnover and more than 25 years of operation. It has strong presence in therapeutic segments such as anti-diabetic, anti-arthritis, anti-depressants and anti-inflammatory.
Just like IT, India is fast emerging as an outsourcing hub for generic formulations and bulk drugs and our Feb’14 recommendation is well placed to capitalize on the opportunity with its USFDA, WHO GMP, EUGMP, ANVISIA and COFEPRIS approved manufacturing facilities. All such certifications have enabled the company to export and grow its presence in regulated and semi-regulated markets of USA, Europe, Canada, Brazil, Latin America and South East Asia.
The company derives more than 35% of its sales from exports and has been continuously adding to its filings in US and Europe to further expand its presence in such markets.
As far as R&D is concerned, the company has two R&D Centers and its focus is on production process improvement for existing drugs and on development of blockbuster drugs which are expected to go off-patent in near future. The company is expected to add 20 new filings with global regulatory authorities within the next 2 years.
Financial performance highlights:
- 5 years sales growth – 21% + CAGR
- 5 years EBITDA growth – 24% + CAGR
- 5 years PBT Growth – 30% + CAGR
- 5 years avg. ROAE – 17% + (last year ROAE – 23%)
- 5 years avg. CFO – Higher than reported net profits
- Debt equity ratio – Reduced from 2.0 in FY 08 to 1.4 in FY 13
- Dividend yield – 5% +
- Promoter holding – 60% (consistently increasing since past many quarters)
- PE Ratio – 5.00 (on TTM basis)
- EV/EBIT – 5.40 (on TTM basis)
We believe that if the company is able to reduce debt equity ratio further down to less than 1 in next few years, the stock can get re-rated to around 8-10 times earnings from current valuations of 5 times earnings. Besides, with expanded capacities in place, new drug filings in both regulated and semi-regulated markets, the outlook for earnings growth seems robust.
You can access some of our past reports (including the report on IPCA Laboratories) that have already been made public by clicking HERE