Saturday, September 22, 2012

GTS 2 ANSWER - SEQUENT SCIENTIFIC LTD.










 

Sequent Scientific is a pharmaceutical company owned by the same promoters of Strides Arcolab Ltd ( STAR).It is both in Animal Health and Human health Products - manufacturing Active Pharmaceutical Ingredients(API’s),Contract Research and Manufacturing Services(CRAMS) and also producing Specialty Chemicals.Company is the world’s largest producer of Veterinary Anthelmintic API’s and having strong alliances with Orffa B.V, which is amongst the world's largest veterinary pharmaceutical marketing companies. In human health category ,It is one of the largest supplier of Anti- Malerial API’s to CIPLA .Sequent having  700+ employees and 5 manufacturing facilities located at Tarapur,Mangalore,Panoli,Mahad and Ambernath.Its R&D centers are located at Bangalore and Mangalore with more than 120 scientists.In the human health segment , company’s products includes Albendazole,Ramipril,Artemether,Tenofovir,Glychocilic Acid,Artesunate..etc..More than 10 new API’s are in development stage like Bromfenac Sodium,Valporic Acid,Labetalol HCI..etc. In veterinary API division sequent manufacturing more than 20 products and many new under various stages of development.Company also producing many formulations under its own brand name for vetenary segment. As on March 2012 , company filed 33 Drug Master Files (DMF) and another 22 is under progressing .

After taken over by the promoters of Strides Arcolab in 2007,its turnover moved from Rs.68 Cr to Rs.335 Cr in just five years through organic and inorganic route. As on March 31, 2012, Sequent having  six subsidiaries and three step-down subsidiaries .Now , company is taking many steps to move into the big league. A multi faced strategy is in place and company is at various stages of implementing the same .Recently company completed its expansion at its Mangalore unit for human API’s .Expansion of its specialty chemical division also completed and its fruits are expected from the second half of the current financial year onwards.In FY 2011-12 ,company reported a sales growth of 18 % in specialty chemicals division and this year company will start exporting from this division . Last year company  also decided to enter into new sectors includes  Penems, Penicillin,Oncology and Phyto Pharmaceutical/Herbal Extracts  with a total capital expenditure of  Rs.164 Cr. Funding for  this capex will be through debt and internal accruals and the financial closure also completed. Its new USFDA standard facility at Panoli is expected  to contribute from the next FY .SSL has started implementing the Penems project  under its 84% subsidiary M/s. Sequent Penems Private Limited .The first phase of  this greenfield project will be fully operational by  the end of this FY. 





Through its another subsidiary Elysian Life Sciences (Mauritius) Limited,company started the cultivation of Artemisinin plant  in Africa.Leaf of Artemisinin is the key raw material for one of its best selling anti-malerial human API’s  ‘ Artemether’ . ‘Artemether’  is contributing almost 35 % of company’s revenue .Till now Artemisinin  leaf is  imported from China and Vietnam. So this backward integration will surely improve its margins going forward. These are some of the exciting facts about the company which will bring benefit in next few years .

Financials.

FY 2011-12 was an unfortunate year for Sequent .There were two accidents in two of their factories which took the life of few employees and resulted in production stoppage for many months. In September 2011 ,there was a gas leak incident at its Tarapur unit which took the life of 4 employees.  On February 03, 2012 a fire broke out in its existing Panoli facility which disrupt the production for many months.Now the company strengthened the safety standards  and just came back to the normal production schedule.As a result of these one off events ,its net profit nosedives from Rs.16 Cr to just Rs.1.5 Cr in last FY.In the latest  June quarter too it posted a loss of Rs.15 Cr .Out of this Rs.15 crore loss about Rs.13 Cr is due to foreign currency transactions.I believe ,going forward company will implement a proper hedging mechanism to minimize this risk. In my opinion there is no meaning in analyzing this company based on its past performance .The good days are just ahead as in the case of Granules India.

Some observations

I believe this is one of the very few listed pharma companies of its size remains  least researched by equity analysts and  investor fraternity .Even now, many investors are  not aware this company is a pharma company and it is owned by the same promoters of Strides Arcolab.You may wonder why this stock hits its 52 week high price even after reporting a huge loss of 15 Cr in first quarter !.In my view  there is a reason for this - even if this company having an equity base of Rs.22 Cr , all these shares are held by just 2000 share holders.Promoters are holding 56% and another 32% by HNI’s and other corporate entities.A close look on its recent share holding pattern indicating the signs of an accumulation in this stock .Normally such a trend is visible when the insiders having some positive information which is not available in public domain. While reducing their stake in the other listed company Strides Arcolab, promoters are also  hiking their stake in this company even through  open market  purchases.Due to the accumulation/cornering  of these informed sources its share price is ruling at higher level even after dismal performance in recent past.In addition to open market purchases, now the promoters are subscribing  21,00,000 warrants on a preferential basis. Two promoter group entities Agnus Capital LLP and Chayadeep Ventures LLP will subscribe 4.37 percentage each  which will take the total promoter share holding from 55.8 % to 60.47 % .

Conclusion

Now  company is going through a transformation phase  .It is now concentrating and paying much attention to high value niche human API’s and veterinary formulations.After about 5 years of acquisition, promoters are now willing to invest heavily in this company .Being the promoters of Strides,they have good experience in this field and good connections with foreign marketing channels.By implementing a prudent hedging strategy they can minimize the forex fluctuation related risks going forward.  Another possible milestone is the approval of USFDA for its Mangalore facility ,which is expected by the end of this FY.Since a major portion of its floating stocks already cornered and the process is still going on ,chances are very high for a sharp up move in its stock price once the new projects starts to contribute.We have seen this trend in many stocks in the past where there is very low floating stock and the available stocks with a  handful high profile investors. Here we can see such names like Lakshmi Mankekar, Satpal Khattar..etc. Based on many conventional valuation parameters like P/E ratio,Debt equity ratio ..etc  this stock is not a Buy . This company  shows huge loss in first quarter and we can’t rule out the same trend in few more quarters  ,but even after this loss Sequent currently trading near to its 52 week high which  is an appreciation of almost 200% from its 52 week low . From the filing to BSE it is clear that the promoters bought  shares from open market even above Rs.100/-. Their decision to subscribe shares in preferential issue even at high price is also indicating their confidence in the company.All together , this is a stock with  many ingredients  to become a  multi bagger  in future ,but you should also remember hunting for multi baggers always associated with a higher level of risk and  need enough patience .Take it or not , based on your risk profile. CMP is Rs.138/-

Disc : I have vested interest in this stock ,hence my views may be biased

60 comments :

  1. dear
    Great Yaar. how can u search this type of company?i get huge benefit from some of your reco., keep it up.
    now question-SRF is buy at present price?
    PATIDAR

    ReplyDelete
  2. Hi Valuepick,

    Good research, but I was just wondering Jubilant Life Science is better than this? 10X times revenue compared to Sequent, reputed management and good exposure to foreign market. Please let me know your views.

    Thanks,
    Ravi

    ReplyDelete
    Replies
    1. Dear Ravi

      There is many many companies better than this one .As I mentioned this stock is not for all.I know many people thinking like you mentioned but in my experience we can't make any extra ordinary gain from a stock if everyone think that is a good stock.If it is not suitable for your risk profile and you feel it is not worth ,never invest.Own conviction is the most important factor in investment decision.

      Delete
    2. Yes Sir... I totally understand that, thanks for your reply. Whats your view in Atul Auto? Does it look good at the CMP?

      Thanks,
      Ravi

      Delete
    3. Atul auto already covered here even before bonus issue.

      Delete
  3. Dear VP,
    Current Liabilities are double than last year at the same time there is no increase in assets for last financial year.
    Operating profit margin is down. I don't think this company deserves this much valuation. It's a high risk play and money may remain locked for quite long.

    Regards
    Girish

    ReplyDelete
    Replies
    1. As I mentioned in my posting, this stock is not suitable for any one who takes investment decisions purely based on theories and past performance.

      Delete
  4. Dear VP,
    Is there an operator Nexus operating in Granules, it is falling from a great height. Any reason that you can think of?

    ReplyDelete
  5. Dear Friend

    Operators,investors,speculators all are part of stock market.They will play their role and we need not bother about it.Suppose there is only investors ,do you think the stock exchanges can survive ? :) .If there is some momentum in any stocks speculators and short term players will rush into it .when it stagnates they will exit from it at any costs.we know Infosys came from a price of below Rs.100 to almost Rs.10000 .But this upmove was not a one way journey.There was many up and downs in stock price but company continues its business growth and ultimately rewarded .As investors we should concentrate only on the business growth of company ,if it happens we will rewarded.

    ReplyDelete
    Replies
    1. As expected,no one could have explained it better

      Delete
  6. Valuepick,
    You have great capabilities of research and reading. I am too small person to suggest but apart from finding good stocks regularly you should recommend few high conviction stocks and constantly research them in your style and update all of your readers with your finding - positive or negative.
    Also, I have no money to buy new stock regularly - which might not be a constraint for you :).

    Thanks
    JK

    ReplyDelete
    Replies
    1. I too like you , both in the case of money and time :)

      Delete
  7. Hi VP,

    On September 6, 2012, in Granules India update post, I had asked you specific advice that for those who missed Granules bus, whether we can board the bus of Sequent Scientific, but you chose not to consider the query !

    Anyways, I understand your time constraints and huge number of queries and hence the benefit of the doubt.

    ReplyDelete
    Replies
    1. Sometimes ,it may happen due to time constraint .In such a situation first I avoid is the comment by 'Anonymous'. Don't take both Granules and sequent in the same level.It is a high risk high profit one.

      Delete
  8. Atul - your regular readerSeptember 22, 2012 at 8:43 PM

    VP Sir,
    2 things to ask:
    1. Is it time to book profits in Granules or hold?
    2. The margins have decreased from last 2 years and lowest so what will drive the stock up as EPS and profit will be lower. Also what we saw in last 2 days, the market is more inclined for power, Infra stocks so may be Pharma may be out of flavour for now as seen in Themis Medicare which came down.

    Just raising some points as market seems to be bullish on Power more now.

    ReplyDelete
  9. Dear Atul

    You are asking the question and giving the answers too .Then What I can say ?.Own conviction is most important ,do accordingly .

    ReplyDelete
    Replies
    1. Sorry sir,
      My question was not clear. The 1st one was for Granules and 2nd was for Sequent. I was wondering what will drive the stock up as they are losses and its not clear at what price the warrants will be converted into shares.

      Thanks for responding..Like your write up and patience to answer.

      Delete
    2. Dear Atul

      You will get some idea about pricing of the proposed preferential issue based on two factors.

      1)Minimum price of any preferential issue can be priced only on the basis of Chapter 7 of SEBI(ICDR) regulations.

      2) Here in the case of this company ,'Relevant Date' is August 27,2012


      I think it is enough to calculate an approximate issue price.(just do some home work :))


      Calculating the future and taking investment decision based on it is the only way to make mutibagger kind return in stock market .Sure ,risk is always there .Our calculations may not materialize in some cases and loss may occur on that account.I mean , we should take decisions based on each one's risk profile.Many investors are not interested to invest in loss making companies.In my opinion we should look behind the reasons of that loss and the possibilities ahead before reaching a conclusion.Many people may come to invest after a company posted profit but by then 90% of price rise will be already reflected in that stock's price.

      Delete
    3. Yes VP,
      Great answer and thanks for the response. Yes I did check it should be in the range of Rs.117.

      Great blog and great explanation. Yes in the market on should be able to bear the losses too without which its difficult to make money. Its all about taking chances.

      Thanks,
      Atul

      Delete
  10. Whats your view about granules now

    ReplyDelete
    Replies
    1. My views are based on the business prospects of companies and not on price movements.I am not a follower of technical methods and will not put a buy on any price rise and sell on any fall in price.

      Delete
  11. Dear VP
    Coming week planning to buy Renuka sugar and piccadly agro. DO u think its wise to enter at this level since this sector already started appreciating in the market over the month.

    ReplyDelete
    Replies
    1. generally positive on sugar sector from past many months.Renuka is a company having significant operations outside India,hence you should watch the sugar price movement in world markets especially in Brazil too and its debt repayment schemes.I am not tracking Piccadly agro .Sakthi and Balrampur are good good stocks from this sector.Dhampur already moved from my previous recommended level of <Rs.40

      Delete
  12. Dear VP,

    Please let me know if Nitta Gelatine is better choice or India Gelatine. Nitta is diversifying into pharma and agricultural related products. Is this a positive or are they straying into something which they dont have expertise. Thanks for your help.

    Best Regards,
    Shankar.

    ReplyDelete
    Replies
    1. In agricultural related space they are going to use their bye products .Not expecting any additional risk only on this reason.

      Delete
  13. Hi,
    I am pretty new to share market and started trading from this month. I started viewing your blog this month only...Its great to see such a nice analysis of stocks ...
    I am trading through Zerodha traders, and they dont have BSE trading platform right now. Please let me know some stock for NSE ... Thanks in advance

    ReplyDelete
  14. Please don't misunderstand my suggestions as trading calls.It purely on investment purpose.

    Since our aim is to maximise profit and not saving brokerages , I think better idea is to change the broker who are not offering facility in all major exchanges rather than changing stocks.

    ReplyDelete
    Replies
    1. Yes, I am also planning to do so. Zerodha has promised me to open bse stock exchange trading platform from october. I hope they stick to the promise, otherwise I will change the broker :)
      Please keep posting for the noob traders like me :)

      Thanks again

      Delete
  15. Hi value pick,

    I am very happy for the services you are doing in educating people on investment and giving your insight on many stocks. I started investing from last three months and I thank you on the recommendation of granules india

    Thanks

    ReplyDelete
  16. Your views andhra sugars....good dividend play...supplies turbo jet fuel to isro....

    ReplyDelete
  17. Hi Value Pick,

    I am new investor and started with Granules India(got 90 % appreciation) and Schnedier (30% appreciation)

    Thank you for your suggestions
    You are helping a lot of new comers

    Prasad

    ReplyDelete
  18. How does Kaveri seeds,amar raja batteries, TBZ appear to you?

    Also I hv been holding ONGC for sometime any views on the same post recent diesel price hike n othe steps.

    ReplyDelete
    Replies
    1. Kaveri seed is one of my favorite from a level of Rs.270 (http://value-picks.blogspot.in/2010/07/kaveri-seed-company-future-perfect.html) which is at present trading above Rs.950/-.If you are ready to take some risk you can still hold it.Positive on Amara raja .Not tracking TBZ

      Delete
  19. Hi Value pick,


    Any thoughts on Mold tech packaging?? 20% continous growth from past 5 years, hefty dividends (more than 10% for CMP) niche products. Please let me know your thoughts on this.

    Thanks,
    Ravi

    ReplyDelete
  20. Sir, I am regular reader of your blog, I have invested in Avantel Ltd.,Shakti Pumps Ltd.,Bharat Gears Ltd.But unfortunate that except mentioned shares all are moved at rapid pace.So please advises whether to shift it into Sequent or some another shares.
    Mrs.Neelam R. Shah/Maharashtra

    ReplyDelete
    Replies
    1. Keep Shakti pump. shift from others to Zicom and JB Chemicals.

      Delete
  21. Replies
    1. I think the effect of Page Ind is still in it but business not showing expected growth

      Delete
  22. DEAR VALUE PICK

    I AM REGULAR READER OF YOUR BLOG I WANT TO PURCHASE ANANT RAJ @ 54 5000 SHARES PLS ADVICE

    ReplyDelete
  23. Sir opinion about motherson sumi systems ?????

    ReplyDelete
  24. Navin flourine international ltd --- bse code 532504 .

    It ful fills all value criterion

    Please cooment

    ReplyDelete
    Replies
    1. A major portion of profit is from the selling on Carbon Credits.We can't assure the continuity of this element.

      Delete
  25. Dear sir, i have also invested in Bharat Gears which is also not moving up like others are? any reason or something wrong with the comapny? I believe it could be the effect of auto sector that facing slow growth rate? pls throw some light. OR should i shift to your other recommendation - Sequent?

    ReplyDelete
    Replies
    1. Nothing wrong with the company but in next few quarters auto ancillary companies may under perform due to production cut and production re-alignment of major auto cos.Even this company is performing well in business , if the entire industry under performs it may affect every cos price movement from this sector .

      Delete
  26. Congrats to All who had bought Kaveri Seeds. Stock hitting new highs. What a stock.
    I don't hold it but do have:

    Granules India: Promoters are still buying stock till date. I am waiting for it to become another Kaveri Seeds :)..

    Holding: Godawari Power & Themis Medicare.


    Thanks VP for such wonderful pick. Excellent.



    ReplyDelete
  27. Dear VP,

    Thanks for another classic find.

    I know you do not comment on numbers, but could you please give us some guidance as to where the topline will be in the next 1 year and 2 years, based on your research.

    Thanks again!

    ReplyDelete
  28. sir your views about force motors..
    why this stock is so undervalued..??

    regards

    ReplyDelete
  29. Dear Sir,

    Thanks for your guidance
    Please advice on Thangamayil Jeweller. Good promoter, Hiking stake,Fantastic result since listed.
    Can we buy at current level?

    ReplyDelete
  30. Sir request your views on Marg Ltd.

    ReplyDelete
  31. Sir, any views on MONSANTO and BLISS GVS PHARMA???

    ReplyDelete
  32. Dear Sir,

    Please suggest on Kingfisher.

    Regards,
    Venkatesh

    ReplyDelete
  33. Dear VP,

    I read your views about Sequent,i liked that and i m planning to enter in this counter. Now I want to ask a question that i holds Singer India and i want to know ur views about this company and if u r not tracking this company, i want to make a request that pls do the research on this stock for the sake of all investers because this
    is an MNC and a turnaround story.

    Regards,
    Sachin

    ReplyDelete
  34. Dear Value Pick,

    Can you pls review Lovable Lingerie once again. A lot of people think that it can become a multibagger in 3-5 years. Also, what about Kwality Diary?

    ReplyDelete
  35. Dear VP

    Sequent is planning to start a joint venture company with shasun Pharma in vetenary segement.As far as my knowledge the vetenary segment constitutes to the major income of sequent.How it will affect the existing share holders of sequent ? can u please explain?

    ReplyDelete
    Replies
    1. New development is positive for the company .Sequent will own more than 70 % of the new company and it will be a subsidiary.Proportionate financials will be reflected in the consolidated numbers of sequent.

      Delete

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