After Quant Mutual Fund, Sunil Singhania Picks 1.2% Stake in this Pharma Stock

If you make a list of the fastest growing mutual funds in India, it will be difficult to leave out one name i.e. Quant Mutual Fund.

The fund's explosive rise is not without reason though. It has racked up impressive performances across most of its schemes, with quite a few of its funds featuring consistently among the top-ranking mutual fund schemes in India.

In May 2024, the fund made a bold bet and acquired over 1% stake in a smallcap pharma stock.

It bought around 10 lakh shares of a pharma company at an average price of Rs 576 per share (the stock currently trades at Rs 632).

Adding to the list, renowned investor Sunil Singhania has taken a position in this same pharma stock.

Before we move on to the stock details, let's look at who Sunil Singhania is...

About Sunil Singhania

Sunil Singhania is founder of Abakkus Asset Manager, an investment management company.

He has a track record of over two decades in equity markets, and he played a significant role in building Reliance-Nippon MF into one of India's largest asset management companies (AMCs).

To dwell deep into his portfolio, check out Sunil Singhania Portfolio: top 5 stocks.

Which Stock did Sunil Singhania Buy and Why?

The company in question is Aarti Pharmalabs.

On 26 December 2024, it was reported that Sunil Singhania has acquired over 10 lakh shares of this smallcap company.

The transaction was carried out via bulk deals on the NSE in two tranches. Take a look -

As can be seen, Abakkus Asset Manager lapped up 10.7 lakh shares, or 1.17% stake in the drug manufacturing firm at Rs 575.08 apiece.

Promoters of Aarti Pharmalabs were the net sellers, as they pared 1.09% stake for Rs 615.2 million (m).

The Orchid Family Trust offloaded 4.97 lakh shares, or 0.54%, while the Tulip Family Trust sold 5.02 lakh shares, or 0.55%, at Rs 575 apiece, according to the National Stock Exchange (NSE) bulk deals data.

When we backtracked to Aarti Pharmalabs' June 2024 shareholding, Sunil Singhania and Abakkus' name was missing from the shareholders list.

Every quarter, companies have to file their shareholding and provide the names of shareholders who hold above 1% stake in the company.

The latest shareholding has now revealed that Singhania has entered the stock by adding it in his Abakkus funds.

This is a huge purchase by Singhania.

While we don't exactly know why he bought into the pharma counter, there are some reasons that we can guess...

Strong Promoter Backing

Aarti Pharmalabs was incorporated in 2019 as a wholly owned subsidiary of Aarti Industries, the flagship company of the group.

It has taken over the existing pharma business of Aarti Industries since July 2021.

The company is promoted by the Gogri family, which has an extensive 35 years of experience in the industry.

Aarti Pharmalabs is engaged in manufacturing of APIs, intermediates and xanthine derivatives.

The company has three facilities, located at Gujarat and Maharashtra. It's in the process of setting up a new unit in Gujarat.

Over the years, the Aarti group has built an established user base, by maintaining healthy relations which ensures repeat orders. The flagship company Aarti Industries is the largest producer of benzene derivatives in India, and a major player among global manufacturers. It has a global market share of around 25-40% across all its products.

For Aarti Pharmalabs, the reputed group profile helps it attain more export orders every year. It exports to the US, Europe, Russia, among other nations. Liconsa Laboratories and Caribbean Refrescos are some of its global clients while Dr Reddy's Lab, Zydus Healthcare, and Glenmark Pharma are its domestic customers.

The company faces intense pressure from China for its Xanthine derivatives, which make up for almost 50% of its revenue. However, the long-term partnerships it has built with global giants helps maintain a strong position.

Gradual Uptick in Profit

For the first half of FY25, Aarti Pharmalabs has posted a decent performance in both the quarters.

Its revenue for the H1FY25 came in at Rs 10.1 bn, up 13% year-on-year (YoY).

Profit for the same period was reported at Rs 1.1 bn, up 11% YoY.

Over the years, the company has improved its margins due to backward integration into manufacturing of intermediates for APIs.

Financial Snapshot of Aarti Pharmalabs

Rs m, cpnsolidated	FY22	FY23	FY24
Net Sales	11,999	19,452	18,526
Growth (%)	-	62%	-5%
Operating Profit	2,095	3,444	3,909
OPM (%)	17%	18%	21%
Net Profit	1,223	1,935	2,169
Net Margin (%)	10%	10%	12%
ROE (%)	18.2	13.4	13.1
ROCE (%)	19.4	16.1	16.8
Dividend (Rs)	0.0	2.0	3.0
Debt to Equity (x)	0.3	0.1	0.2

Data Source: Equitymaster

Going forward, the company is anticipating growth across all its key segments, with EBITDA growth guidance of 10% to 12% for FY25.

Massive Growth Plans

During the September 2024 quarter, Aarti Pharmalabs undertook capacity expansion of Xanthine derivatives to 9,000 metric tonnes per annum.

It also commissioned a solar energy project at Akola, which is expected to save costs from here on.

The company also has a greenfield project at Atali for its CDMO/CMO and intermediate manufacturing, with commissioning expected by the fourth quarter of FY25.

The company's management is anticipating significant uptick from FY27 once its Atali project and Xanthine expansion is completed, and these segments start contribution to revenue streams.

How Aarti Pharmalabs Share Price has Performed

Aarti Pharmalabs share price has gained 12% in the past 5 days.

On 26 December 2024, the day on which Singhania acquired stake in the company, the stock price rallied more than 8%.

Aarti Pharmalabs has a 52-week high of Rs 721 hit on 29 August 2024 and a 52-week low of Rs 381 touched on 14 March 2024.

In the past 1 year, shares of the company have gained 18%.

Here's a table comparing Aarti Pharmalabs with its peers -

Aarti Pharmalabs vs Listed Peers

Company	Aarti Pharmalabs	Caplin Point	FDC	Hikal	IOL Chemicals
ROE (%)	13.1	22.9	14.9	6.1	8.6
ROCE (%)	16.8	26.9	19.6	7.8	12.2
Latest EPS (Rs)	25.2	64.9	19.5	5.9	17.1
TTM PE (x)	25.1	36.9	25.9	61.7	24.2
TTM Price to book (x)	3.1	7.2	3.6	3.8	1.5
Dividend yield (%)	0.5	0.2	0.0	0.3	1.2
Industry PE	40.9
Industry PB	5.5

Data Source: Ace Equity, Equitymaster

As of September 2024, promoter holding in the company stands at 46.1%.

Mutual funds have consistently added stake for the past three quarters.

For a detailed overview, check out the entire shareholding here.

In Conclusion

Following the buy and sell activities of fund managers and then making your own decision based on your personal risk appetite is a good strategy.

Fund managers have dozens of analysts working for them with access to data streams that retail investors can only dream of.

While this approach might seem appealing, it has several potential drawbacks.

A replicating investor may end up buying a stock at a much higher price than the successful investor, as the latter may have bought the stock much earlier when it was undervalued.

Also, their risk tolerance level, size of investment and investment horizon is often quite different from that of a retail investor.

They may be able to take bigger risks and hold on to investments for a longer period of time.

Hence, blindly following their moves without considering one's own risk profile and investment goals can be risky.

Investors should focus on investing in fundamentally strong companies that align with their individual goals and risk tolerance level, rather than blindly following these gurus.

Make sure to research thoroughly and include corporate governance in your checklist.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...