6 November 2013

Torrent Pharma: A fundamental view

Smart money was the only return generator in the past 5 years from when the index has been moving sideways and  midcaps and many bluechips too have been losing value continuously. Smart money was what flowed into the FMCG, IT and Pharma space. Even if seen from a view outside the stock markets, the past decade has been about these 3 sectors and the boom they have been seeing! Many investors regret having missed the sweet returns these sectors have generated and instead were stuck on to the traditional Power, Engineering and other manufacturing sectors which have seen negative returns of 50% in this time. When asked if they will invest in Pharma now, they say that it is too expensive and priced out. Ofcourse, it is tough to invest for long term in shares which have P/E ratios of 40-50 as they are considered over-valued. Luckily, there is one stock from the Pharma sector which is still fairly undervalued and we expect decent returns from it in the coming 1-2 years. Torrent Pharma.

As on 6th November, 2013 the stock is trading at 485 levels with a P/E of 12.91 and Dividend Yield of 4.74%. Apart from being a consistent dividend payer, the company has been growing at a very good pace. As on 30th September 2013 the company has reserves of Rs 1,853 crores and long term borrowings of 419 crores. The company is in a healthy financial position with the Sales having a CAGR of 14% over the last 5 years and the EPS having that of 19%. The EPS for FY2013-14 is expected at 55 and the P/E if assumed to be 16 (Fair Valuation), gives the target for the stock at 880 levels which will be a 80% appreciation above the current market price. We at DalalStreetBulls have kept our assumptions conservative while forecasting the above figures. Now coming to another important part, many companies have exponential growth abilities but they remain stagnant over the years just because of a "not-so-dynamic" management. From various sources and press releases we consider the management of Torrent to be a very professional and dynamic one. The employees too are satisfied with the management. The promoters own 71.51% stake in the company. A lot of mutual funds too have big stakes in the company

So investors having a horizon of 12-18 months or even more must have a look at Torrent Pharma. As this is a long term investment, there must not be a stoploss based on technical parameters. Patience is very much needed for successful investments.

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