Albert David

Posted at August 25, 2009 written by Ayush

Hi Friends,

Have a look at this small sized pharma company which has been performing very consistently over the years yet the valuations are cheap.

The pharma sector is going through very good times and one should invest in good company still available at reasonable valuations. Good things are:

This is one of the stock ideas in which one can lock his profits .

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Financial Snapshot:

Year

200203

200303

200403

200503

200603

200703

200803

200903

201003

    
Type

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

    
Sales Turnover

95.60

103.33

114.39

101.79

127.42

141.16

158.12

183.91

200.00

    
Other Income

2.78

4.30

4.79

3.02

3.79

2.26

2.21

2.14

   
Total Income

98.38

107.63

119.18

104.81

131.21

143.42

160.33

186.05

200.00

    
Total Expenditure

86.43

93.83

103.04

92.54

113.97

121.51

137.84

160.75

   
Operating Profit

11.95

13.80

16.14

12.27

17.24

21.91

22.49

25.30

28.00

    
Interest

2.86

2.41

1.73

1.73

1.50

2.48

3.84

5.15

5.00

    
Gross Profit

9.09

11.39

14.41

10.54

15.74

19.43

18.65

20.15

23.00

    
Depreciation

3.15

3.45

3.47

3.92

3.87

4.77

6.73

7.95

8.00

    
Tax

2.00

2.74

3.69

2.42

4.45

7.56

4.59

4.66

5.00

Best

Worst
Reported PAT

3.94

5.20

7.25

4.20

7.42

13.20

7.33

7.54

10.00

11.50

8.00
                     
EPS  

9.11

12.70

7.36

12.99

23.12

12.84

13.20

17.51

20.14

14.01
PE  

10

10

10

10

10

10

10

10

12.00

6.00
Exp Price  

91.07

126.97

73.56

129.95

231.17

128.37

132.05

175.13

241.68

84.06
CMP (7-Aug-06)      

90

90

90

90

90

75.00

75.00

75.00
                       
OPM %

12.50

13.36

14.11

12.05

13.53

15.52

14.22

13.76

14.00

    
NP %

4.12

5.03

6.34

4.13

5.82

9.35

4.64

4.10

5.00

    
                       
Dividend %

16%

18%

20%

20%

25%

30%

30%

35%

      
Dividend Amt

0.91

1.03

1.14

1.14

1.43

1.71

1.71

2.00

      
Payout %

23.10

19.81

15.72

27.14

19.27

12.95

23.33

26.53

      
                       
ROCE:

20.66

23.33

27.55

15.25

21.19

20.82

14.78

15.21

      
                       
M Cap:

42.83

                    
BV:

100

                    

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  • Siddharth,

    I think you need to look at the things at continuity. What i mean is - look at the over the years performance of the company....look at their cash flows. Don't just look at the ratios...think yourself as the business owner.

    I don't think any good MNC is available at below BV & less than 6 PE. Also growing at 15-20%. If yes please point me to the same.

    Thanks & Regards,
    Ayush
  • Siddharth Shukla
    Hi ayush,
    I totally agree,but this being a micro cap don't u feel one should be extra careful. Further,many MNC pharma large/mid caps have debt free balance sheets & extremely comfortable interest covers . For a cyclical i would look for a higher interest cover than 3 for sure,but no matter how good the sector maybe, if the interest cover falls in the range of 2-3 it could be troublesome i feel based on my reading.But as you said it could be a temporary thing due to the CAPEX plan and if it can maintain or grow its cashflow, interest cover & D/E would improve over time.Just my first impressions,haven't still gone through the ARs.

    Rgds,
    Siddharth
  • Siddharth,

    Albert has only standalone financial statements.

    Yes, debt equity is 1:1 i.e.. 104%. I feel this is comfortable figure for the pharma sector.

    For interest coverage I look at Interest/EBIDT and that is 5 times. Even if you are looking at Interest/NP, then 3 times is safe.

    More than just looking at these ratios, try understanding the meaning of these ratios in respect to the industry. For pharma, as the sector is non-cyclical these are safe ratios, IMHO.

    Regards,
    Ayush
  • Siddharth
    Hi Ayush,
    I am sorry, i meant 100%+ (104% to be precise) & am using the same formula you have mentioned. What data are u using, standalone or consolidated??? I am using consolidated data from Reuters India and Interest cover turns out to be ~3.5 ,i am not sure how accurate the numbers are tough.I feel that interest cover of a minimum 3 is desirable,what do u feel??
  • Siddharth,

    You are using the wrong formula for calculating the Debt Equity ratio. To calculate the same total debt is divided by (Equity + Reserves). So in this case the Debt Equity ratio is 1.1.

    Interest coverage is almost 5 times and in my opinion it is comfortable.

    Regards,
    Ayush
  • Siddharth Shukla
    Hi ayush,
    I had a quick look at the financials(only 3yr consolidated stmts frm reuters website).The stock looks quite and appears to be cheap. The only concern i have with is that the Debt to equity ratio is 100+ and the Interest cover has dropped from arnd 15 in 2007 to 3.5 in 2009. Is this of any concern or was it due to the Capex plan undertaken by the company??As u mentioned they went for a major upgradation & hence they had -ve fcf in 2k8 & 2k7 due to large capex but have generated good FCF in 2k9. Can we expect the D/E ratio to go down and Interest cover to improve going forward??

    Rgds,
    Siddharth
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