Sunday, March 12, 2006

Stock picks at has given it's list on price targets in it's website. The list has been worked keeping positive ripples from the budget into perspective and the technicals / fundamentals of the company.

The top five in the list with expected returns over the next 3-5 months are -
1. Venus Remedies - 61%
2. GM Breweries - 58%
3. Areva T&D India Ltd. - 54%
4. Astra Microwave Products Ltd. - 49%
5. Flex Industries Ltd. - 49%

Let's examine a few of them in this post -

1. Venus Remedies

VR is not a Grahamian stock, by a long shot. It's NCAV is at 5.76 while it's CMP is at a fairly high 363.00 rupees per share. With a dividend yeild of 0.28%, I was kinda wondering what makes this stock command such a high valuation. That was when the news element of the stock bundled me ....
a) 12-Dec: VR in talks with MNCs over drug licensing (Cephalosporins combination)
b) 15-Dec: VR has appointed a senior scientist
c) 16-Dec: VR sets up wholly owned subsidary in Germany
d) 27-Dec: VR broad bases Board
e) 3-Jan: VR filed third PCT International Application
f) 17-Jan: Venus Remedies up on Q3 (we'll examine this aswell)
g) 31-Jan: VR acquires pharma unit in Germany
h) 20-Feb: VR filed fourth PCT International Application
i) 8-Mar: VR to consider issue of FCCB

Financially, here's where the company stands -
a) On profits - LY profits were a miniscule 4.1 crs. However this year has been a different story. Q1+Q2+Q3 profits currently stand at 10.81 crs. Extrapolating the numbers, the profit for the year should be on around 16 crs. Which means an EPS of 24.96 rupees/share.

b) The fwdP/E of the stock is at 14.54 which is fairly lower than other emerging pharma companies

c) Sales are going at a doubly pace (a bit more than that) ... LY sales were at 30.83 crs while this year (in 3 qtrs), the company has reached 62.06 crs. At this scoring rate, the company should close at around 90 crs of sales for this FY.

Now, what makes me think again ....

a) All this news ... where did this come from? You might want to read the announcements in BSE. Venus Remedies has close to 50 announcements at the BSE in the last 365 days. (Dr. Reddy's had around 60 announcements in the same period)

b) There is no margin of safety in the stock for comfort. At an NCAV of 5 and a book value (LY) of 23.55 rupees per share ... a CMP of 363 would mean .... (both LY numbers)
1. P/BV ratio of 15.41 and,
2. P/Sales ratio of 7.5

c) And ofcourse, you know my disapproval to any stock who would not give me 10 crs of profit to the quarter. VR is well below that mark.

However, this is not to dissuade you from purchasing the stock as a not-that-far-feteched-bet. The big question is ... when to buy and how does this stock move. Answers to this can be obtained from the charting given below. Interesting trends, these ...

The stock first started moving in the September of 2004. It moved for 4 months (till Dec 2004), post which the stock was silent for 5 months. Again in May-2005, huge volumes moved up the stock to touch 300 rupees per share. This continued for 4 months (till July 2005), post which a lull set in for another 5 months. Another spurt has been seen this Dec onwards. It's been on for Jan, Feb and Mar ... 4 months again. What's your take for the next 5 months?


Blogger Shankar said...

.. when such things happen - mostly punters are playing the stock. Once again, please stick to the cardinal rules ..
1. Necessary condition - atleast 10 crs of profits a month
2. Sufficient condition - NCAV of atleast 30% of CMP; if not then a P/E of less than 12.

11:56 PM  
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