»5 Minute Wrap Up by Equitymaster

On This Day - 26 JUNE 2019
Our Latest Recommendation: A High-Quality MNC Pharma Stock

Sarvajeet Bodas, Research analyst, The 5 Minute Wrapup

In Smart Money Secrets, Radhika and I aim to recommend only the highest-quality companies.

For this, we keep a hawk-eye on the investments of India's top 40+ super investors.

It's an illustrious list of exceptional fund managers, investing gurus, PIPE (Private Investment in Public Equity) funds, and global super investors.

They invest for the long-term.

They pick companies with strong financials, robust cash flows, and healthy balance sheets.

They also focus on the quality of the management.

For us, all this is just the starting point. Basically, this is our first level filter.

In addition to all this, we use our proprietary tool Smart Money ScoreTM. It helps us reject companies with cooked books of accounts and questionable management.

With this, we get a limited number of good quality companies to choose from.

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This is why, you won't find even a single Smart Money Secrets stock with a corporate governance issue.

This month's stock recommendation is the same. We are recommending an MNC Pharma stock.

This is our second pharma recommendation. Both have one thing in common.

They both focus on the Indian domestic pharma market.

Why the domestic market?

Many of the leading pharma companies have reported a double-digit growth in their domestic sales. Going forward, we expect the domestic market to continue its double-digit growth rate.

This is on the back of better access to healthcare, new product launches, more hospitals, e-pharmacies, and more insurance coverage.

Whereas companies that are export-focused, particularly to the US market, are on the back foot.

Why?

There is price erosion is the US. This is due to the consolidation among distributors.

Earlier, there were eight distributors in the US. This came down to just three. So now, the distributors have better bargaining power.

Also, the USFDA has improved its pace of grating approvals.

This has resulted in rising competition as well as pressure on pricing.

Apart from all this, the regulatory issues and currency movements have negatively impacted the short-term outlook for export-oriented pharma players.

Coming to the MNC pharma space, these companies have under gone a transformation.

Earlier they were just marketing arms for their parent's patented drugs.

Now, they are expanding their presence in India. They are adding to their sales force and rolling out new products.

What's more, in the MNC pharma space, there is only a limited impact of foreign regulations. Also, these companies have a strong portfolio of brands with market leadership.

They have a strong balance sheet with zero debt. The high dividend payout is the icing on the cake.

The only thing that remains is to buy them at the right price. We are recommending one such MNC pharma company this month.

Strong product brands, a cash cow OTC business, and a robust distribution network, are just some of its highlights.

It manufactures most products in-house. This allows for better margins, due to lower costs, compared to its MNC peers.

We recommended the stock on Monday to our Smart Money Secrets subscribers.

Subscribers can click here to view the recommendation report.

And if you haven't signed up for Smart Money Secrets, you can do so here.

Happy Quality Investing!

Chart of the Day

When it comes to stock market performance, MNCs have outperformed the broader market.

The Nifty has a MNC index. This index comprises 15 listed companies. The foreign shareholding in them is over 50% and/or the management control is vested in the foreign company.

This Nifty MNC Index has outperformed the Nifty 50 index in the last five years.

Nifty MNC Index Outperforms the Benchmark Index

Why the outperformance?

Generally, MNCs have a vast global experience. These companies have weathered the competition in many markets across the world.

Also, MNCs generally have strong parentage. This helps create strong brands and gain market share.

Not to mention MNCs have strong balance sheets. This brings stability during times of market volatility.

Similarly, in the past, MNCs have demonstrated good capital allocation. Hence they, consistently delivered high returns on capital.

Finally, MNCs typically have high standards when it comes to board composition, corporate governance, and operational efficiency. All this helps to maximise shareholder wealth.

In Smart Money Secrets, we recommended such a company from the MNC space.

If you've subscribed to Smart Money Secrets, please click here to view the recommendation report.

If you haven't subscribed to Smart Money Secrets yet, you can access the report by signing up here.

Warm regards,
Sarvajeet Bodas
Sarvajeet Bodas ,
Co-editor and Research Analyst, Smart Money Secrets

PS: Sarvajeet Bodas and Radhika Pandit, co-editors of Smart Money Secrets, have recommended a great MNC pharma stock with significant upside. If you haven't subscribed to Smart Money Secrets yet... you can do so here.

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