»5 Minute Wrap Up by Equitymaster

On This Day - 21 SEPTEMBER 2018
My First Pharma Stock Recommendation!

Kunal Thanvi, Research analyst

I am always busy in September, with lot of meetings (AGMs and the regular kind as well) across the country.

While regular meetings with company managements are an on-going exercise, attending annual general meetings, on the other hand, is fun.

A few days ago, Sarvajeet and I attended a pharma company's AGM in a remote location in south India. The city does not have an airport. We travelled 200 kms by road. It took us about 3 hours to get to the company's office from the nearest airport.

That wasn't the end of our travels. We met two more companies after getting back to Mumbai. One of these should qualify for our next month's recommendation.

Now, coming back to this month recommendation...

Our meeting with the management of the pharma company went quite well. But we believe its best days are behind it. It will face multiple headwinds in the coming years.

That is why I've selected another pharma company for this month's Smart Money Secrets recommendation.

One of our favourite super investors has bought a stake in the company. We believe he will scale it up in time.

As you read this, Sarvajeet and I are working on the recommendation report. We will publish the report on Monday, 24 September.

Meanwhile, here's a sneak-peak...

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The company we are recommending this month has always kept itself away from the spotlight. It has carved out a niche for itself in an otherwise commoditised pharma business.

Started in the seventies as a tiny company re-packing generic pharma products, it did not foray into international markets until 1992 and did not have its own R&D setup until 2007.

With the help of its new generation owners, it has made a seamless transition from its legacy generic business to a present state as a focused player.

Smart Money Secret's First Pharma Recommendation

The management, has focused on certain niche therapies in specific markets to turnaround a business which was loss making in 2001-02.

Post 2000, when every Indian pharma company had a strategy of getting into the lucrative US market, this company chose a different path. It looked at opportunities in emerging economies (Less Competition = High Profitability).

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Unlike most Indian pharma companies, it did not try to sell each drug in every country. The company catered to the needs of each country separately.

Interestingly, it has recently entered the US market where it sees its next leg of growth.

While it is facing issues in its main geographies, we believe these headwinds won't last in the long-term.

We believe the company's temporary slowdown and the negative impact on the stock's valuations, could be a great opportunity for our Smart Money Secret's subscribers.

By the way, I'm still traveling. I will be in Chennai next week for my next meeting. But before that I'm recommending my first pharma stock to my Smart Money Secrets subscribers.

Subscribers will receive the recommendation report in their inbox on Monday.

You can sign up for Smart Money Secrets here...

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Chart of the Day

Talking about the pharma companies, I have noticed something interesting. Every pharma company claims to do something special but their financials are seldom in sync.

Every pharma company in India has developed drugs that it specialises in. In fact, they call it their niche.

Just to give you an example, the company we met in south India earlier this week claimed to be one of the few manufacturers of a certain drug.

We really liked the story. But if you were to look at the long-term financials, they don't reflect any niche attributes. There was no sync with the story and financials. Hence, we decided to look at another pharma company for Smart Money Secrets.

I believe it is very important that financials should reflect the so called niche or competitive advantage or moat the company claims it has.

If it fails to deliver on the financials, then its moat is lame.

Look at today's chart. This month's Smart Money Secrets recommendation fares very well.

A Niche Business Should Have Financials Like This!

I want companies to display this kind of performance for years, if not decades. Only then will I believe the companies command moats that they claim to have.


Kunal Thanvi
Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

PS: Kunal Thanvi, editor of Smart Money Secrets, is the Sherlock Holmes of investing. He is on a mission to reveal the top picks of India's best investors to you. For clean, high quality stock recommendations that won't put your wealth at risk, subscribe to Kunal's Smart Money Secrets.

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