powerfulpicks advice on Ankur Drugs: The company is engaged in manufacturing of pharmaceutical formulations in various dosage forms for leading Indian Companies. Thus its primary business is 100% Contract Manufacturing activity, with strategically located plants.
Their clients include almost all the good names in Indian pharma industry: Ranbaxy, CIPLA, Elder Pharma, Lyka Labs, Blue Cross Laboratories, Cadila, Wockhardt, Glenmark Pharma, Parentral Drugs, Torrent Pharmaceuticals, Sandoz, Nicholas Piramal etc. They manufacture most of the high sales volume drugs available in the Indian market: Pantoprazole, Amoxyllin, Paracetamol etc.
This is typically a high volume low margin business. Note though that raw material prices are going up, but they will have limitations in increasing prices because in this business, the bigger drug companies call the shots and can have a big effect on the contract pricing.
But if they can push up the volumes year after year, quarter after quarter, the market will favorably react to the script and investors will come to the counter, pushing up the script's price.
However, there is a big problem. In order to do exactly what I mentioned above, they will need to keep expanding their facilities. The current expansion drive has landed them on high debt, making the debt:equity ratio to become 3:1; investors in the market are not comfortable to anything beyong 1:1.
So even if the stock is under-valued with P/E being only 3.4 and P/BV being 1.05 and the script has corrected from 235 to 144 (nearly 40% correction), investors do not still find it to be attractive. And therfore, Ankur drugs continue to slip even in this strong bull market. Unless they can protect their margins by brining down the interest they are paying on their high amount of loans, investors will not feel confident. The script may slip to 115-117 in the short term. Investors are requested to stay away from this script for now.
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