Saturday, March 1, 2014

SMS PHARMACEUTICALS LTD - BUY











After two years long bull run in pharmaceutical sector, it is not very easy to find stocks at reasonable valuation from this sector based on their past  financial performance.But based on the future growth potential ,still there is few pharma companies overlooked my market participants are available.This week let us look into one such company – SMS Pharmaceuticals.



                                                                                 This Hyderabad based API manufacturer and Contract Research and Manufacturing (CRAM) service provider came out with an IPO in 2007 @ a price of Rs.380 .Even this company went to public only few years back,promoters having vast experience in this field and most of the key persons behind this company was once  associated with  Cheminor Drugs . (An old time favorite pharma company in listed space promoted by Dr.Reddy's Lab which  later merged with Dr.Reddy’s Lab itself ). CMD and Joint MD of SMS were the key executives  in  the R&D division of Cheminor Drugs .SMS  mainly in the production of  Ranitidine HCl, Sumatriptan Succinate, Sildenofil Citrate, Omeprazole Magnesium, Ramipril, Almotriptan maleate, Gemcitabine HCl, Imatinib Mesilate and their intermediates. In addition to this about 20 products are in pipeline which either came out of patent recently or to be be come out in near future . Company have six manufacturing facilities located at Jeedimetla(two units) Bollaram ,Bachupally ,Kandivalsa and Khazippally and two  R &D facilities  at Gagillapur and Hyderabad  –all in AP.Two of its manufacturing facilities  are USFDA approved sites .At a time of stringent scrutiny process of US regulator and in the background of recent incident of loss of USFDA approval even for some big pharma companies ,SMS’s these two USFDA approved facilities are really an important asset for the company.In addition to USFDA ,its production sites are approved by other regulators from Japan,Germany and other European countries .Company exporting products to more than 70 countries across the glob and more than 50 % of income is coming through exports.SMS  is the larget producer of Ranitidine HCl in the World.



Recent Developments and Financials



Earlier in 2012-13 company sold one unit to Mylan Pharma for Rs.170 Cr .Using  this fund , company paid back part of its debt and an amount of Rs.46.5 Cr spend for buying  back of its own shares .SMS bought back  15 lakhs shares at an average price of Rs.262 . Balance of funds utilized for the upgradation  and expansion of its other facilities and for working capital requirements.Now post  completion of expansion ,company started to deliver good performance .In the latest December quarter SMS reported a jump of 100 % in top line to Rs.138 Cr and a profit of Rs.8.40 Cr against a loss of Rs.17 Cr.For the Nine month ended December SMS reported a topline of Rs.355 Cr and a net profit of Rs.9.44 Cr .On an equity base of Rs.8.47 Cr ,9 month EPS is Rs 11.10 ( ln last full year , if we exclude the other income component company was in loss and its operating cash flow were negative ) .Company started to report robust performance only from second quarter of this financial year after the completion of the expansion of all its manufacturing facilities ( See table below) .

                                     Click on the image for a better view
                          ( March 13 quarter profit was due to one time income)

I expect company will start to report full potential from next financial year onwards and FY 2014-15 may end with an EPS in the range of Rs.35-40 .Since public float is low ,liquidity is less in this stock.Promoters holding close to 64 % stake (NIL pledge) and big investors including GulfPharmaceutical Industries holding another 17.5 % stake.



Stock is currently trading @ Rs.240 which is far below its IPO price of Rs.380 and below its recent buyback price of Rs.262 . Since this recommendation is based mainly on the anticipated performance in future and its low liquid nature ,it is a high risk high profit kind opportunity and recommending only to those having capacity to take such a risk @ CMP Rs.240. Stock listed in both exchanges .



Link to company website HERE

Latest Annual Report HERE

Disc: It is safe to assume that I have vested interest in all stocks I am recommending.


36 comments :

  1. Sir, at cmp which is a better bet, granules India or SMS pharma?

    ReplyDelete
    Replies
    1. The magnitude of stock price movement in a low volume stock and comparatively high volume stock will be always different. Select the stock suitable for your risk profile.

      Delete
  2. sir plz advice on blue star INFOTECH purchased at 148.40 should hold or dispose off plz waiting eagerly for Ur reply plzzzzzzz reply VP sir

    ReplyDelete
    Replies
    1. I have recommended this stock @ Rs.72

      Link below

      http://value-picks.blogspot.in/2013/08/blue-star-infotech-good-times-ahead.html

      Nothing to comment about a buy after 100% appreciation .

      Just a HOLD for me.

      Delete
  3. Sir what is your view upon voltas and crompton thanks

    ReplyDelete
  4. Sir,

    Thanks for your new recommendation, already holding Granules India as per your guidance.

    I want to know, can I buy Caplin Point Lab at current market price along with SMS Pharma ?

    Regards,
    Avishek

    ReplyDelete
  5. What is your view on Shakti Pumps now?

    ReplyDelete
  6. Sir what is your reply on Venus Remedies. Do u think it will outperform in long run. Thanks in advance.

    ReplyDelete
    Replies
    1. Medium term depends on the success of Elores in regulated markets

      Delete
  7. Sir kindly tell me what is your view upon infinite computers as i want to buy please please reply so that i am able to pick a good one

    ReplyDelete
  8. Kindly let me know your view on Neuland Labs

    ReplyDelete
    Replies
    1. Neuland recommended @ Rs.126

      http://value-picks.blogspot.in/2010/11/neuland-laboratories-ltd-turnaround.html

      Delete
  9. Dear vpji kindly give your view on vesuvius india

    ReplyDelete
    Replies
    1. Stock currently trading @ Rs.460 which earlier recommended @ Rs.251.At CMP it is a HOLD.

      Delete
  10. Sir do u think potential in advanced micro which came down to too low

    ReplyDelete
    Replies
    1. Parent company is in debt trouble .

      Delete
  11. Hi,

    Can you please provide your view on Dr Datsons lab (Previously Anjaneya pharma)? It had fallen drastically and recovered recently.

    I tried to find the reason for drastic fall, but could not get the reason. Please provide your view on it.

    ReplyDelete
    Replies
    1. Pledge invocation is the reason for sharp fall in Dr Datson.

      Delete
  12. solid find sir........super research ...........
    one the gem pack pharma
    almost 81.5 % shares held by prom + private investors.
    stocks is near to 52w high
    i think technicals will also come into play after hitting 52w high

    ReplyDelete
  13. Dear sir ,
    Please tell me your view on uflex for one year horozon.

    ReplyDelete
  14. Whats your take on Tree House education @cmp 225? How do you rate education sector going forward in regards with Tree House?
    Pls reply this time sir.

    ReplyDelete
    Replies
    1. One of the better companies from this sector but valuation is not very cheap .One can consider in dip.

      Delete
  15. ur view on basant agro can buy

    ReplyDelete
    Replies
    1. I have clearly mentioned in my posting that why Basant is an opportunity .But it is very difficult for fixing a time frame .If management will de-merge its seed business it will unlock a lot of value.

      Delete
    2. Sir,
      When a company demerges and makes it into 2 companies, say A and B, the existing share holders are now holders of share in A or B?

      Regards,
      Sunil

      Delete
  16. Hello Sir,
    could you please share your view on 'hyderabad industries' and 'NAVIN FLUORINE INTERNATIONAL LIMITED'

    ReplyDelete
  17. Sir, Should i buy SMS Pharma @ CMP of 270?

    ReplyDelete
    Replies
    1. If you have some risk appetite and willing to HOLD till FY 2014-15 result.

      Delete
  18. sir , what is your view on cloud computing industries?

    ReplyDelete
  19. sir

    what about NATCO and sMS pharma with CMP

    ReplyDelete

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