Will investors lose money by buying stocks of Alembic Pharma, Aarti Drugs & Laurus Labs?

Is the current rally in Pharma stocks like Alembic, Aarti & Laurus (current sector leaders & market favorites based on growth in sales & profits) being driven by supply chain disruptions due to Covid19 or is this a secular growth story we investors are looking at?

Will investors lose money yet again, chasing hot stocks of a sector, everybody’s talking about?

To the answer this question, lets look at the sales data for all 3 companies.

Alembic Pharma

Aarti Drugs

From Aarti’s Q4 FY2020 Concall

Laurus Labs

Conclusion

The consistent growth in quarterly sales of sector leaders from the API segment is suggesting that certain tailwinds are helping the API sector (Laurus & Aarti), and this is more likely to be a long term trend rather than a one-off jump in performance due to Covid19 disruption. As the above charts depict, both Aarti & Laurus started doing well, at least 2 quarters before Covid19 disrupted API supplies.

Meanwhile, Alembic started doing well (Most of Alembic’s sales come from Generic drug exports), due to it’s focus on R&D and strategizing well, much before Covid19 tailwinds came by.

I believe, (and could be wrong), all 3 companies are likely to do well over the short to medium term because of the reasons mentioned above.

Disclosure – I and my clients have substantial positions in Alembic Pharma and Laurus Labs and my views are certainly biased. As of 19th August 2020, I do not have a position in Aarti Drugs. This blog is not to be construed as an investment advice. Please consult your investment advisor before investing.

Disclaimer: This is NOT investment buy/sell/hold advise. I am not SEBI registered. May change stance on above businesses anytime with new developments and/or new insights, and/or overall market conditions. May NOT be able to update periodically. Please do your own diligence and/or take professional advise, before investing.

-Barath Mukhi

-19-Aug-2020

Author: Barath Mukhi

Concentrated investor in Indian markets

7 thoughts on “Will investors lose money by buying stocks of Alembic Pharma, Aarti Drugs & Laurus Labs?”

  1. Hi Barath, hope you are doing well. I have recently invested in Deepak Nitrite. The rational being transformation of the company from pure commodity type to speciality chemical. I like to have your views about the investment. And thanks for wonderful write up of Alembic Pharma. I am very bullish on the company prospect. Thank you.

    Like

    1. Hi Dipankar,
      I used to track Deepak Nitrite before Covid but lost interest due to the uncertainty around covid. As of today, very few companies have at least some visibility and I prefer those because nobody knows how things will pan out, going ahead. So my strategy is to focus on companies which have some visibility + have reported some good numbers. I have put up those companies here https://mobile.twitter.com/barathmukhi/status/1298811821042745344

      For Deepak Nitrite, the latest set of results have been below average because of lockdown and drop in prices of Dasda which was a key source of profit for the co.

      Phenol business has been quite volatile too.

      Deepak has a basic chemicals division which is a stable business. As you rightly said, the main growth driver going ahead will be the fine and speciality chemicals division where there is predictable growth with higher margins.

      We will have to wait and see how the fine and specialty chemicals division performs besides any improvement in phenol margins as well as an improvement in dasda prices

      Like

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