Warm up to Q2 results

Posted at September 28, 2009 written by Ayush

pharma_300dpi

Quarter two results are are almost there, and we will keep our eyes on the stocks which are undergoing expansion and have come out with good Q1, yet available at cheap valuations. Focus sector is the pharma sector (as it is in the pink of health) and here are two stock ideas:

  1. Ahlcon Parentals: The company is back to decent profitability after having some troubles in the slowdown. One must go through their latest annual report and sense the optimism in the company. The company is in the process of scaling up the capacities and they could achieve 50-70% growth in next 1-2 years. Even if they don’t scale up majorly but be back to pre-crash sales levels of roughly 50 Cr, the company could well achieve an EPS of say 8-10. CMP is just 37.
  2. Fresenius Kabi: Better known as Dabur Pharma earlier, this company is having ambitious plans for the oncology segment. Oncology sector is witnessing high growth rates and we should continue to bet on serious players in this space. Go through their annual report and one can sense the major expansions and the possible returns one can generate. Their Q1 was excellent and a consistency or improvement over Q1 can zoom the stock price.
    Share your views

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  • Good work, Siddharth.

    The past is past. What is making me optimistic are the recent quarters and the potential going ahead.

    If one removes the "one time items" from the recent qtr nos, the company is doing very well.

    Lets see their Q2 nos to validate the logic and take further call ;-)

    Regards,
    Ayush
  • Siddharth Shukla
    Hi ayush,
    I gave my opinion solely based on the numbers & i haven't gone through the ARs. First of all looking at the cash flows, they have -ve CFO for past 2 years & -ve FCF for past 5 yrs(not a huge concern if its a fast grower). Gross profit margins are good but Net profit margins have been erratic(-ve in 2k9 ,22% in 2k8, below 10% in 2k7,2k6,2k5) . Coming to asset turns , its been around 0.5 for past 5years, not a gr8 number for a pharma stock i feel. Debt to equity has gone up significantly in 2k9 tough interest covferage looks good barring 2k9. Being a high debt company a look at the ROCE shows poor numbers too except for 2k8. So neither is it a cash generating company & neither is it extremely profitable. I haven'[t looked at the recent quarter numbers tough(i generally don't look at them due to absence of Balance Sheet & Cash Flow stmt). I have no clue about the oncology space and about the impact of the MNC takeover, my view is solely based on numbers . I welcome your views & ya i am still learning to look at the bigger picture & learning from guys like you , thanks for the advice ... :) .

    Regards,
    Siddharth
  • Hi Siddharth,

    Yes, Ahlcon is cheap if they maintain their nos like in Q1.

    Fresenius Kabi is a much better business model with long term growth prospects. Financial are not in a mess - try understanding the bigger picture - After takeover, usually all MNCs do balance sheet clean up and provide for lots of one time expenses. The beauty of this company is :
    1. Its in a business which is one of the fastest growing & has very limited big players.
    2. Operating margins are very good...close to 25-30%. (Look at Q1)
    3. The German co is aggressive and has lined up lots of expansion.

    Have a look again, go through their annual report.

    Regards,
  • Siddharth Shukla
    Hi ayush,
    Ahlcon Parentals looks interesting & cheap, i went through the financials & they look good. However i wasn't quite impressed by Fresenius Kabi, the financials are in a mess & neither is it cheap,is your investment rationale on this one based more on Macro factors??
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