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Last Updated : Jun 30, 2016 01:07 PM IST | Source: CNBC-TV18

Here are a few investment ideas from Daljeet Singh Kohli

In an interview to CNBC-TV18, Daljeet Singh Kohli of India Nivesh Securites shared his readings and outlook on specific stocks and sector.

In an interview to CNBC-TV18, Daljeet Singh Kohli of India Nivesh Securites shared his readings and outlook on specific stocks and sector.

Below is the verbatim transcript of Daljeet Singh Kohli's interview with Ekta Batra & Prashant Nair on CNBC-TV18.

Prashant: How is the market looking? I see you have some stock picks. Markets have done very well, but you are a bottom-up guy and you have some ideas for us.

A: Yes, we are looking at bottoms up approach and market on a whole, can do a lot many things. There will be a lot many issues to rattle with. But most important is ultimately, we make money when we choose the right stock. So, we have tried to find those stocks where the impact of Brexit is minimal or which can be taken care of by doing something on the domestic front where you will be able to make up more than what you would lose there.

So, with that theme we are going and we are continuing with the bottoms up approach with the stocks selection on that basis. The stock that today we are going to talk, one is Apcotex Industries, which is purely nothing to do at all with any export markets, because they are 100 percent domestic oriented. They are entire business comes from India. They are a specialised chemical player. They are into rubber chemical and latex basically and they have taken over a company called Omnova Solutions.

By taking this over, they are actually going double their revenue this year itself. And  the company that they have taken over was making a loss at the operating level. Within two months of integration, they have brought it to 4 percent plus. So, that is the kind of leverage that they have. So, we are expecting that in the end of the year FY17, the merged entity will also have a similar margin which they had in the prior to merger. That means an upside of almost 10-12 percent in the new business that they have acquired. That is the theme of buying Apcotex.

In terms of valuation if we talk, then the stock is trading at around 20 times and then 14-15 times of FY18 which again is reasonable. So, there is a track record of company integrating good things in the past also. There is a big synergy coming from the new business acquired and the valuation in your favour. It makes sense to look at the company even though market may do whatever, but the stock will perform. So, we have give a target of Rs 444 and a buy rating.

Ekta: I know you look at the pharmaceutical space very closely and we understand on Alembic Pharmaceuticals for example, all of their facilities are now cleared by the US Food and Drug Administration (FDA), the active pharmaceutical ingredient (API) facility just got inspected without any 483s or observations. Do you look at that space and anything in terms of opportunity that you might be spotting now within the pharmaceutical space?

A: Yes, we do carefully look at this space and we have quite a few opportunities there. Alembic is one of the companies where we have a positive view although because of the stock pricing, in between, it had moved very fast. So, we had put a hold rating there. But Rs 700 plus kind of target we are looking at the stock is still available at a better valuation. One can look at Alembic.

Now, the pick right now is Aurobindo Pharma and Torrent Pharmaceuticals. These are the two stocks that we are pushing even now because we believe that their business is quite intact and they have, relative to other companies, a lower risk of regulatory problems. For example, Aurobindo has been continuously getting approvals despite the fact that one of their units was under FDA approval. From that unit also, they are still getting approvals and continuously approvals are coming. So, that means that the regulatory risk is much lesser. So, that continues.

The other stock in the same space is Jubilant Life Sciences where again, we continue with the positive view. We have a buy rating with a target of Rs 495. So, there are quite a few. Amongst the top guys, we have put a hold rating on Lupin and Sun Pharmaceuticals as of now. But Lupin again, is a preferred pick because we believe that probably next six months or so, they should be able to get through this problem of FDA. So, that again should be a good stock to accumulate at this time. Maybe slowly and steadily one can keep putting in the portfolio. Over a period of time, it will get through this problem. So Lupin again remains a preferred pick.

Prashant: Just a quick point on Aurobindo. We have been seeing these approvals come in non-stop right. It is part of the Nifty now, but somehow, the stock has not performed and it has not performed at a time when it is getting approvals and everybody for a while did not get any approvals. The second half of 2016 for example, was such a period. But no real momentum, interest, people are talking about it, some high networth individuals (HNI) like it, but it has not really caught on.

A: Two reasons which I can think of. One is that despite the fact that approvals have come, the topline growth has not been that strong. That reason has been because the pricing pressure was quite significant in the US, so their base business was seeing a lot of pricing pressure which they were able to offset by launching of these new products. Second, these new products, what had happened when these Generic Drug User Fee Amendments (GDUFA) guidelines was coming, Aurobindo had bunched up many products together. So, they went in for filing of almost 300 products at one go.

Now, these are those approvals coming and out of these, many approvals are for very small products. So, there are USD 10 million, USD 20million products. So, while the number of approvals look very big, the opportunity size may not be that big. So, that would be the reason why we are not seeing. Maybe market is waiting for big jump in the revenues, actual revenues to come from US which is not seen there in the last two quarters. This quarter was also a little bit muted although better than the previous quarter, but still muted. So, maybe if they get any blockbuster approval this time in the next 2-3 months, then probably we will see again a rerating of the stock. But as such, the company is on the right track. We have been meeting them quite often and we have found that they are good.



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First Published on Jun 30, 2016 12:11 pm
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