Aashish Tater bullish on pharma sectors for long-term

In an interview to CNBC-TV 18 Aashish Tater, Head of Research, Fortunewizard.com says he is bullish on the pharma sector. He picks Glenmark and Cipla as a buy for atleast a period of 12-18 months.

  Below is the edited transcript of his interview with CNBC-TV18   Aashish Tater on Glenmark Pharma

We have been bullish on pharma as a space for quite sometime now and we have been picking stocks into the space with strong fundamentals. We feel the re-rating process will continue to happen for selected stocks, even for current levels and Glenmark fits the model.

 

Let me first take a technical snapshot of this particular stock. Eventually this stock has moved into strong hands because the retail participation has gone very low in this particular stock. People are looking at it from a short-term perspective. They feel the stock is fully priced in, but are taking a longer term call. They feel a PAT of Rs 850 crore would be reported for next year which is roughly above estimate of any other investment house with almost 30 percent weightage. If that happens what will happen to the PE expansion?

 

We feel market analysts are working with a PE multiple of 18-20 times. We have assigned a higher PE multiple of 23 times for current levels. The stock would go and stabilize somewhere around at Rs 600 odd mark from the next 12 months perspective. What has actually happened in the business model of this particular company is that they have relatively transformed.   If you see the history of Glenmark Pharma, they were trying to do everything alone. However now, they are partnering with one of the best players; not one but many players. They are insourcing and outsourcing their products which is resulting in the top-line and bottom-line growth. We feel the expansion is going to continue for next three to four quarters which will be very rewarding for these kind of companies.   We have been bullish on Cipla, Glenmark, Wockhardt and we continue to do so. However, for something like Glenmark, we feel markets are underpinning its potential and if someone has got a longer term view, it will be easily rewarding its shareholders by atleast 50 percent even from current levels from next 12 months perspective.

 

Aashish Tater on Cipla

This particular stock, is a replacement from our side from an investment banking aspect, where we feel the next mega deal after United Spirits would be Cipla. We took a call on United Spirits when it was at Rs 550-600 and suggested a target of Rs 1,440 for the target deal. Eventually, the same price happened and we were very happy to book part of our profits at the level of Rs 1,500 odd levels. We continue to hold a larger portion of our holdings, but have strategically moved from something like Wockhardt and United Spirits to Cipla for couple of reasons.

 

If you see the performance of this particular company, year-on-year has been staggering. The momentum is going to continue even going forward in terms of EPS as well as top-line growth. This particular company can have the potential to go at much higher levels, because we feel there is no successor for the current promoters which will eventually see the deal getting through at much higher levels.

 

We took a math to see how in the past the company has been able to mark deals. We took a reverse math for something like Ranbaxy and few other pharma deals. At current levels, if the deal goes through the stocks they should be given at least Rs 530-600 on conservative side per share to the shareholders to actually make it lucrative.   We have a very aggressive target given that we are working with four or five potential buyers for this particular company, given the promoters would be interested in selling their stake if they get a decent premium to the current stock price.   We are pegging a target of Rs 730 from next 18 months perspective. It will see lot of hurdles in terms of clearances of deals but even if it does not happen fundamentally, the stock would give 30-35 percent returns from current levels of Rs 530 on conservative side.

If there is a deal that the promoters want to exit this particular stock, then the stock could go and test Rs 730 or somewhere around that level and the deal should be struck. So, this is one stock where the risk reward is extremely beneficial to shareholders from next 12-18 months perspective.

Disclosure: Safe to assume stocks have been recommended to clients but no personal position in theses stocks.