Pharma sector regaining momentum

Pharma sector regaining momentum

By Rajiv Kapoor | 23 July, 2016

Indian equity markets have rallied nearly 25% during the last four-five months with the Nifty at present hovering around the 8,500 mark and consolidating. This has been a dream rally for most traders and investors. Equity mutual fund investors, who have been predominantly investing through the SIP route, have seen handsome gains in their portfolio. A large number of stocks (especially mid caps) have more than doubled in value in the past few months, while highly leveraged sectors like metals, realty and PSU banks have seen huge buying interest from investors. The latter has been due to undervaluation seen in this particular sector for some time. While some sectors are running ahead of fundamentals and valuations, the question is whether the rally can sustain the present uptrend. Well, it seems that the markets are heading for a correction. But then corrections will provide market participants a reasonable entry level. A number of factors such as disappointing earning figures reported by major companies like Infosys, HUL, Wipro, uncertainty about GST Bill’s passage in the monsoon session of Parliament and rising inflation numbers may provide the bears enough reason to go short on the futures and options segment of the market. There is a strong feeling in the market that the Nifty may correct to the 8,300-level and hence we advise investors to remain cautious in the next week or so.

The pharma sector had taken a severe beating during the last few months and it seems to be regaining its flavour. In this context, Albert David Pharma is a good portfolio buy due to various positive reasons. The company got started in 1924 with a modest manufacturing facility and now after nearly 90 years it has three manufacturing plants in Kolkata, Ghaziabad and Mandideep. While the latter two are WHO-certified, the Kolkata facility is US FDA approved. The company is part of the Kolkata based Kothari group, which is in the business of pharma formulation, bulk drugs, disposable syringes and needles. Albert David is a pioneer in a few drugs that are distributed worldwide, with a significant presence in Africa, US and Europe. India produces 20% of the generic drugs in the world and is the third largest producer of drugs and 14th largest by volume. The Indian pharmaceutical industry is expected to grow by 16-18% in the next decade. Albert David has tie-ups with Ajinomoto Co and Roussel Morishita Co of Japan, for manufacturing and marketing of a wide range of drugs. With awareness towards healthcare, new government schemes and lifestyle changes, the pharma industry is expected to grow voluminously on the back of partnership with renowned multinational companies. On a tiny equity of Rs 5.70 crore and supported by reserves of over Rs 92 crore, the book value is a solid 246. The company has reported a total income of Rs 69 crore and a net profit of Rs 44 crore for the quarter ending March 2016. The exceptional profit has been due to the sale of a brand to Zydus Healthcare for Rs 40 crore, which should retire a large portion of the debt from the company’s balance sheet. The balance amount is expected to be spent partly on research and development and in marketing of existing products. Market men will take cognisance of the fact that Albert David stock has now been admitted for listing in National Stock Exchange also for trading. At the current market price of Rs 315 and an attractive low P/E of 4 vs the industry P/E of 27, the Albert David stock is a strong buy with a price target of Rs 550 in 12 months’ time frame. Medium term investors can look forward to a potential bonus issue from the company providing additional momentum to the Albert David stock.


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