This is amongst one of the first investment that I made as follows:
08/05/2014 : Bought at ₹239
Price update :
27/1/2018 : The current market price of Alembic Pharma is ₹553.
Overall profits to date : 131%
14/9/2018 : The current market price of Alembic Pharma is ₹649
Overall profits to date : 171%
12/3/2019 : The current market price of Alembic Pharma is ₹550
Overall profits to date : 130%
Company : The company is a leading generic pharmaceutical player. They have operations globally and operate primarily in the generics business, with a focus on innovation. Further information about the company is available on their website.
My rationale : I invested in this company due to its consistent revenue growth for the past few years when I researched the stock in 2014. The company operates in pharma industry, which is one of my favored industry for the future growth. Since then, the company has doubled its revenue from 2013 to 2017 growing consistently each year. FY 2017 was a slow year for the company due to absolute data growth stagnation. This puts me in a wait and watch mode before further investments in this stock.
I evaluated the financials as follows :
- Revenues : Same as your monthly or annual salary.
YoY (year on year/annual) Revenue growth : 2014/2015/2016/2017 has been 22%/10%/53%/-1%
The revenue for this purpose is the total revenue for the company.
Takeaway : The company has been able to grow their revenues consistently from 2013 to 2016. The revenue growth stagnated for FY 2017 with revenues at 2016 levels. The company has been facing pricing challenges in some of their products. For Q3,2018 (July – Sept,2017) also, the company’s revenue show a negative growth QoQ.
- Total cost for the company : similar to your expenses (rent, Uber, Ola, petrol, food, etc) to earn the salary.
Cost growth 2014/2015/2016/2017 has been 18%/9%/31%/18%
Takeaway :The company’s expenses growth rate has been consistently lower than the annual revenue growth. This positive trend was reflected in the profits of the company. For FY 2017, the company’s expenses grew 18% year on year v/s the revenue growth of -1% over last year. This is a trend I will keep a look out for, before making any further investments in this stock or even en-cashing out my whole investments.
- Profit/Loss before tax : Similar to your savings at the end of year (Annual Savings = Annual salary – Annual expenses). A difference is that you pay the tax before the monthly salary reaches you.
Growth 2014/2015/2016/2017 has been 51%/16%/161%/-43%
Takeaway : The company’s profitability was showing the same trend as the positive revenue growth. From 2013 to 2016, the company was able to grow the profits by 4.5 times (206 cr to 936cr). This trend was broken for FY2017, when the profits fell from a high of 936cr in 2016 to 529cr. This was a combination of stagnant revenue, higher cost of materials consumed, higher employee costs and higher other expenses.
- Cashflow : The companies are allowed some non cash expenses (e.g. depreciation) to help them replace those assets at the end of their useful life. A cashflow statement provides you with the information on how the yearly cash profit is used in following :
- Investing activities : investing in different options to help them excess money grow
- This is similar to you investing your extra cash in PF, PPF, mutual funds, equity shares ULIPs etc to have interest income or principal appreciation.
- Financing activities : shows if the company is repaying or getting more finances (a negative number might mean that the company is repaying its debt and hence reducing its interest payments for next years)
- This is similar to you repaying your car or home loan during the year from the Bonus or increment during the year.
The company has been using its profits from operations as follows :
- Investing activities : the company seems to be very focused on making consistent financial investments every year. This reflects a very efficient cash management by the company. Even in a relatively low profitability year (2017), the company used the free cash from 2016 to make investments of ~500cr.
- Financing activities : The company seems to have paid off a significant part of their financing in 2016, the year of record profits within 2013 to 2017. The company paid off 274cr of financing, which will reduce their financing costs in the future.
- Financing costs – the company’s costs have reduced from 14.6cr in 2013 to 5.1cr in 2017. This is similar to reducing your EMIs when you pay off your loans OR parts of your loans.
Other things to note when buying a stock:
- Trading volume : the number of share bought or sold on a given day.
Note : The higher the trading volume, the better it is. If you are not comfortable with the investment, it allows you to sell it easily.
- Price charts : these are simple line charts, showing the price movement for a period of time.
Note : This is a simple line chart, as most of you probably use in your daily work. It is recommended to track the price for a long time period (1-3 years) to have a more consistent performance outlook.
- Quarterly results : the revenue, costs, profit before tax analysis can also be replicated for the company’s quarterly performance analysis. Very similar to how you have a mid year performance review in your jobs.
Why did I invest : This company is in pharma industry catering to the global markets. This industry by its very nature has seen an uptrend in the last few years. Also, going forward the strong companies will continue to take advantage of this trend and benefit financially from it. On a cautious side, although Almebic has a strong history and strong revenues, its revenue growth rate suggests that other companies are posing strong threat. When I made my investment, it was before the uplift in their stock pricing. What is important for a profitable long term investment is that the company grows consistently, both in revenues and profits. This will define my future decision to re-invest or en-cash my investments from this stock.
Other useful pages :
This is a personal investment strategy that I have used for myself. The investment made is real with my own personal money. The purpose of this post is to educate the reader on how to evaluate the financials of a stock and make informed decisions for their investments. All investment decision carry financial risk and you should consult with an investment professional before making any investment decision. This is not a stock investment idea.
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